NAO: Spending watchdog issues qualified opinions on Ministry of Defence accounts

• The MoD has not provided accounting records for ongoing capital projects carried out on its behalf by AWE, a non-departmental public body that helps deliver the UK's nuclear deterrent.
• A material shortfall in the provisions the MoD recognised in the 2023-24 financial statements across two separate matters also meant that they had to be restated.
• The Comptroller and Auditor General has consequently qualified his opinions on the MoD's financial statements for 2024-25.

A lack of accounting records for some ongoing capital projects and a materially significant shortfall in the provisions for liabilities in the previous year's accounts have led Gareth Davies, the Comptroller and Auditor General (C&AG), to issue qualified opinions on the Ministry of Defence (MoD)'s 2024-25 financial statements.^1,2

The MoD protects the people, territories, values and interests of the United Kingdom, at home and overseas, through the Armed Forces and in partnership with allies.

It is responsible for a number of associated agencies and public bodies, including the Atomic Weapons Establishment (AWE), a non-departmental public body that helps deliver the UK's nuclear deterrent.

As at 31 March 2025, projects carried out by AWE on behalf of the MoD constituted £6.13 billion of the value of the department's assets under construction (or ongoing capital projects) that relate to property and associated equipment as opposed to military equipment.³ Of this total, £1.5 billion was identified as relating to legacy projects.

However, the value of AWE's legacy projects has remained unchanged for several years, and the MoD was unable to provide supporting evidence for audit purposes or any assurance that the continued recognition of this value was appropriate.

The NAO also identified several other balances within the £6.13 billion that did not appear to meet the criteria for continued recognition in line with accounting standards.

As a result, the C&AG has limited the scope of his audit opinion on the MoD's financial statements for 2024-25.⁴

The NAO has also identified a shortfall of £2.56 billion in the provisions for legal and other liabilities that the MoD had recognised in its 2023-24 financial statements.

Two separate matters gave rise to this shortfall. The first related to compensation and costs to settle legal claims associated with personal injury claims, including noise-induced hearing loss.⁵

The second matter concerned compensation and resettlement costs relating to the Afghan Relocations and Assistance Policy (ARAP) and the Afghanistan Response Route (ARR).^6,7

The MoD had been expensing costs relating to the ARAP and ARR as they were incurred. They had not considered whether a provision was required for their future obligations.

The MoD did not brief the NAO on the existence of a significant data breach and the consequential establishment of the ARR until after a super-injunction was lifted in July 2025. As a result, the NAO was not in a position to consider or challenge the accounting for these arrangements as part of its 2023-24 audit.

Taken together, these two matters constitute a material omission from the MoD's 2023-24 accounts, necessitating their restatement. The MoD did not have appropriate authorisation from Parliament for this expenditure, which has resulted in a qualified regularity opinion.

ENDS
Notes to editors

1. The MoD annual report and accounts 2024-25 can be accessed here: https://www.gov.uk/government/publications/ministry-of-defence-annual-report-and-accounts-2024-to-2025 
2. The MoD is required to prepare its financial statements in accordance with the Government Financial Reporting Manual (FReM) issued by HM Treasury. Under the FReM, the department is required to apply International Financial Reporting Standards (IFRS) as adapted or interpreted for the public sector.
3. Assets under construction (AUC) is a temporary classification that is used while capital projects are still in progress and not yet operational. Costs incurred on projects expected to result in a capital asset should be capitalised and included within the Statement of Financial Position only where they are directly attributable to the resultant asset. Costs relating to a project that do not meet the International Accounting Standard (IAS) 16 criteria should be expensed as they are incurred. In recognition that such capital projects can span a number of years, the carrying value of AUC should be reviewed on a regular basis to ensure that the costs capitalised continue to meet the criteria for capital recognition. Where a project is cancelled or the scope changes then any costs no longer contributing to the eventual capital asset should be removed from the AUC balance.
4. The MoD has commenced a programme of work, in conjunction with AWE, to review the £6.13 billion project costs recorded in the project ledger of AWE to determine the appropriate carrying value of these ongoing projects in the department's accounts. The NAO will audit the outcome of this programme of work as part of its 2025-26 audit, and expects that the outcome of the programme will be reflected in those financial statements.
5. The MoD had previously recognised provisions for these on the basis of claims received. However, following a legal case in July 2024, it accepted a duty of care to those affected, after which it should have recognised a provision for their estimated exposure to both current and future claims.
6. ARAP is a scheme for Afghan citizens who worked for or with the UK government in Afghanistan in exposed or meaningful roles, and may include an offer of relocation to the UK for those deemed eligible by the MoD and who are deemed suitable for relocation by the Home Office. ARAP launched on 1 April 2021 and was closed to new applications on 1 July 2025.
7. In April 2024, the government launched the ARR scheme specifically for those whose personal information was leaked in a February 2022 data breach, who were ineligible for any of the other government resettlement schemes in operation, and who were at significant risk of reprisal by the ruling Taliban regime in Afghanistan. The ARR scheme was discontinued on 4 July 2025.