18. Financial Instruments

18a Financial Instruments by Category

Assets per statement of financial position note Assets at Fair Value through Profit and Loss Loans and Receivables Total
£'000 £'000 £'000
Trade and other receivables excluding prepayments, reimbursements of provisions and VAT recoverable. 10 0 87,424 87,424
Balance as at 31 March 2012 0 87,424 87,424
Liabilities per statement of financial position note Assets at Fair Value through Profit and Loss Other Financial Liabilities Total
£'000 £'000 £'000
PFI liabilities 16 0 469,299 469,299
Trade and other payables excluding statutory liabilities (VAT and income tax and social security) 11 0 126,188 126,188
Balance as at 31 March 2012 0 595,487 595,487


18b Financial Risk Factors

Exposure to Risk

Transport Scotland's activities expose it to a variety of financial risks:

i. Credit risk - the possibility that other parties might fail to pay amounts due.
ii. Liquidity risk - the possibility that Transport Scotland might not have funds available to meet its commitments to make payments.
iii. Market risk - the possibility that financial loss might arise as a result of changes in such measures as interest rates, stock market movements or foreign exchange rates.

Because of the largely non-trading nature of its activities and the way in which government departments are financed, Transport Scotland is not exposed to the degree of financial risk faced by business entities.

Risk management

A high level risk strategy has been put in place which provides a consistent approach to the implementation of risk management within Transport Scotland at a strategic, programme and project level. This is now considered at each meeting of the Audit and Risk Committee.

i) Credit Risk

Credit risk arises from cash and cash equivalents, deposits with banks and other institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions.

For banks and other institutions, only independently rated parties with a minimum rating of 'A' are accepted. Customers are assessed, taking into account their financial position, past experience and other factors, with individual credit limits being set in accordance with internal ratings in accordance with parameters set by Transport Scotland. The utilisation of credit limits is regularly monitored.

No credit limits were exceeded during the reporting period and no losses are expected from non-performance by any counterparties in relation to deposits.

ii) Liquidity Risk

The Scottish Parliament makes provision for the use of resources by Transport Scotland for revenue and capital purposes in a Budget Act for each financial year. Resources and accruing resources may be used only for the purposes specified and up to the amounts specified in the Budget Act. The Act also specifies an overall cash authorisation to operate for the financial year. Transport Scotland is not, therefore, exposed to significant liquidity risks.

The table below analyses the financial liabilities into relevant maturity groupings based on the remaining period at the Statement of Financial Position to contractual maturity date. The amounts disclosed in the table are the contractual discounted cash flows. Balances due within 12 months are included at their carrying balances as the impact of discounting is not significant.

Carrying value 0-12 months 1-2 years 2-5 years 5-10 years >10 years
£’000 £’000 £’000 £’000 £’000 £’000
Non-derivative liabilities 595,487 132,517 11,182 32,397 70,280 349,111
Derivative liabilities 0 0 0 0 0 0
Total financial liabilities 595,487 132,517 11,182 32,397 70,280 349,111


iii) Market Risk

Transport Scotland has no powers to borrow or invest surplus funds. Financial assets and liabilities are generated by day-to-day operational activities and are not held to manage the risks facing Transport Scotland in undertaking its activities.

1. Cash Flow and Fair Value Interest Rate Risk:

Transport Scotland has loans to CMAL which accrue interest at the rate set for the National Loans Fund and its income and expenditure and cash flows are dependent of changes in market interest rates that affect this. Transport Scotland has interest bearing liabilities in respect of PFI schemes and minor lease rentals that are determined in the contracts entered and, as such, the related income, expenditure and cash flows are substantially independent of changes in market interest rates.

2. Foreign Currency Risk:

Transport Scotland is not directly exposed to foreign exchange rate risks.

3. Price Risk:

Transport Scotland is not exposed to equity security price risk.

18c Fair Value Estimation

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair value.

The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current HM Treasury interest rate that is available for similar financial instruments.