module 3 the financial statements - chartered … of resources. the implications of these objectives...

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MODULE 3

The Financial Statements

A THE STATEMENT OF ACCOUNTSA1 The statutory frameworks discussed in section B of Module 1 establish the basic requirement

for authorities for the production of the Statement of Accounts across the United Kingdom (or Abstract of Accounts1 in Scotland). In Northern Ireland, the detailed content of the Statement of Accounts is specified in a government accounts direction. However, in England, Wales and Scotland, reliance is largely placed on the Code to specify what financial statements and notes authorities must include and the other material that is to be provided alongside.

A2 The Code does not contain a definitive statement of what the contents of the Statement of Accounts should be. Instead the requirements are specified in the relevant sections of the Code.

The Statement of Accounts

Requirement Code Reference Further Guidance

Accounting or Reporting Requirements

Statement of Responsibilities 3.2.1.1 Module 3, section C

This statement is not part of the subset of the Statement of Accounts referred to in the Code as the financial statements.

Movement in Reserves Statement 3.4.2.37 Module 3, section E – a part of the set of complete financial statements (see table at paragraph A8).

Comprehensive Income and Expenditure Statement

3.4.2.43 Module 3, section F – a part of the set of complete financial statements (see table at paragraph A8).

Balance Sheet 3.4.2.54 Module 3, section G – a part of the set of complete financial statements (see table at paragraph A8).

Cash Flow Statement 3.4.2.62 Module 3, section H – a part of the set of complete financial statements (see table at paragraph A8).

1. The Local Authority Accounts (Scotland) Regulations 2014 stipulate that the annual accounts in theseRegulations means abstract of accounts produced under section 96(3) of the Local Government (Scotland)Act 1973.

CODE OF PRACTICE ON LOCAL AUTHORITY ACCOUNTING IN THE UNITED KINGDOM GUIDANCE NOTES FOR PRACTITIONERS 2014/15 ACCOUNTS

The Statement of Accounts


Notes (including a summary of significant accounting policies and other explanatory information)

3.4.2.78 Module 3, section I

Various specific requirements for notes to the accounts are contained in individual sections of the Code – a part of the set of complete financial statements (see table at paragraph A8).

Balance Sheet at the beginning of the preceding period

3.4.2.17 Module 3, section D

This is only a requirement where there is a prior period adjustment – a part of the set of complete financial statements (see table at paragraph A8).

Group Accounts 9.1.2.19 (subsidiaries), 9.1.2.26 (associates) and 9.1.2.34 (jointly controlled entities)

Module 9 and Accounting for Collaboration in Local Government (CIPFA, 2014)

Paragraph 3.4.1.5 of the Code requires group accounts to incorporate all the financial statements required for the authority-only accounts, but permits the group accounts to be presented alongside the authority-only accounts in columnar format.

Statutory Accounting or Reporting Requirements

Remuneration Report N/A Module 3, section I, Remuneration Report (Scotland)

(NB: authorities should also refer directly to the legislative requirements and the associated guidance issued by the Scottish government.)

Housing Revenue Account and notes 3.5.3.1 Module 3, section J (England)

Module 3, section K (Wales)

Module 3, section L (Scotland)

Required for housing authorities only.

Collection Fund and notes 3.6.3.1 Module 3, section M

Billing authorities in England only.

Council Tax Income Account, NNDR Account and notes

3.6.3.2 and 3.6.3.3

Module 3, section N

Billing authorities in Scotland only.

Fund Account, Net Assets Statement and notes for the Local Government Pension Scheme

6.5.2.3 Module 6, section F

Administering authorities only.

Fund Account, Net Assets Statement and notes for the Police Pension Scheme

6.5.2.3 Module 6, section G

Police authorities in England and Wales only.

Fund Account, Net Assets Statement and notes for the Firefighters’ Pension Scheme

6.5.2.3 Module 6, section G

Fire authorities in England and Wales and counties in England responsible for the fire service.

MODULE 3 \ THE FINANCIAL STATEMENTS

Information Published with the Statement of Accounts


Explanatory Foreword 1.5.3 Module 3, section B

Although an integral part of the published document, the foreword is not formally part of the Statement of Accounts.

See row below for Scottish local authority requirements for a management commentary.

Management Commentary NA The Local Authority Accounts (Scotland) Regulations 2014 (SSI 2014/200) specify that a ‘management commentary’ is to be provided. Additional, separate guidance on the management commentary is currently being drafted by the Scottish Government (see paragraph 25 of Scottish Local Government Finance Circular 7/2014).

Annual Governance Statement 3.7.4.2 Module 3, section O

Arising from the statutory requirement for authorities in England, Wales and Scotland to carry out an annual review of the effectiveness of their system of internal control.

A3 The Local Authority Accounts (Scotland) Regulations 2014 (SSI 2014/200) specifies that for all authorities, the annual accounts must include:

� a management commentary

� a statement of responsibilities

� an annual governance statement

� a remuneration report (or a statement that no individuals have received remuneration which would require a remuneration report).

It also sets out that the annual accounts must include the following statements as relevant to a local authority’s functions.

� housing revenue account

� non-domestic rate account

� council tax account

� any other statement relating to statutory funds which is required by statute.

General Requirements for the Statement of AccountsA4 The Code’s provisions for the content and form of the Statement of Accounts are based on the

following standards:

� IAS 1 Presentation of Financial Statements

� IAS 7 Statement of Cash Flows

� IFRS 8 Operating Segments


supported by the interpretations in:

� IPSAS 1 Presentation of Financial Statements

� IPSAS 2 Cash Flow Statements.

A5 Paragraph 3.4.1.4 of the Code confirms that it has adapted the requirements of IAS 1 by specifying the format of the statements, disclosures and terminology required to be applied in local government. Practitioners should not then need to make reference to the underlying standards when planning the format of the Statement of Accounts.

A6 However, the Code’s provisions are intended to prescribe the minimum level of detail that authorities must provide, but do not discourage a greater level of disclosure:

� where more detail is required for a true and fair view, that extra detail must be provided (in which case the underlying standards might be relevant for practitioners)

� where the authority considers it would be helpful to include more than the minimum level of detail, additional disclosures can be made, provided that they are appropriate (as a minimum this would require that they give a true and fair view and do not distort or detract from the true and fair view given by the minimum disclosures) (see also paragraph C8 of Module 1).

Specific Requirements for the Financial StatementsA7 Paragraph 3.4.2.16 of the Code reaffirms the objectives of the financial statements as being to

provide information about the financial position, financial performance and cash flows of an authority that is useful to a wide range of users in making and evaluating decisions about the allocation of resources. The implications of these objectives are discussed in greater detail in paragraphs A9 to A18 of Module 2.

A8 Paragraphs 3.4.2.18 to 3.4.2.36 of the Code then present a series of principles that must be reflected when preparing the financial statements elements of the Statement of Accounts. This part of the Code should be regarded as essential reading by practitioners when planning the overall format of their authority’s Statement of Accounts and the accounting policies to be applied – see the following table.


Paragraph Principle Discussion

1 3.4.2.18 Prominence of statements

Authorities shall present with equal prominence all of the financial statements in a complete set of financial statements.

The reference to ‘a complete set of financial statements’ needs to be read in the context of paragraph 3.4.2.17 of the Code, which defines a complete set as comprising:

� Movement in Reserves Statement (MiRS)

� Comprehensive Income and Expenditure Statement (CIES)

� Balance Sheet (BS)

� Cash Flow Statement (CFS)

� Notes

� Comparative information in respect of the preceding period

� Balance Sheet for the beginning of the preceding period (where there have been restatements)

� Statements, or other financial reports or disclosures which are required by statute to be included in the Statements of Account, where relevant to the authority

These statements (for single entity and group accounts) are required to be given equal status in terms of their presentation, their positioning in the published document and the presentational emphasis that they are given.

By implication, other statements can be given lesser prominence.

2 3.4.2.18 Order of statements

The order of the first four statements (listed in paragraph 3.4.2.17 of the Code) is recommended but not required. Authorities shall present the statements in the order that best enables users to understand the statements.

The basic position is that practitioners are free to determine the most effective ordering of the statements. In order to meet the ‘equal prominence’ principle, the statements will need to be grouped together; they can be shuffled into any reasonable order.

The default position will be that recommended by the Code (see preceding row) and practitioners may be required to justify any departure from this. The rationale for the Code’s ordering is that it shows in sequence:

� the changes in the authority’s financial resources over the year (MiRS)

� the gains and losses that contributed to these changes in resources (CIES)

� how the resources available to the authority are held in the form of assets and liabilities (BS)

� how the movement in resources has been reflected in cash flows (CFS).



3 3.4.2.19 True and fair view

Financial statements shall give a true and fair presentation of the financial position, financial performance and cash flows of an authority. A true and fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Code. Compliance with the Code is presumed to result in financial statements that achieve a true and fair presentation.

Discussed in paragraphs A7 and A8 of Module 2.

4 3.4.2.20 Fair presentation

A fair presentation also requires an authority:

a) to select and apply accounting policies in accordance with Section 3.3 of the Code and IAS 8. Paragraph 3.3.2.10 sets out the guidance that an authority’s management considers in the absence of an IFRS that specifically applies to an item.

b) to present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information.

c) to provide additional disclosures when compliance with the specific requirements in the Code is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the authority’s financial position and financial performance.

Discussed in paragraphs D4 to D28 below.

Discussed in paragraphs A28 to A77 of Module 2.

Where compliance with the Code or IFRS does not sufficiently communicate the impact of a transaction, event or condition that an authority considers the users of its accounts should be aware of, it should include additional disclosures to demonstrate the impact on its financial position; financial performance and cash flows in respect of that transaction event or condition.

5 3.4.2.21 Inappropriate accounting policies

An authority cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory material.

All accounting policies need to be effective in securing an authority’s compliance with the Code. A policy that is ineffective in identifying transactions and balances, recognising them at the appropriate time, measuring their impact or placing them appropriately in the financial statements cannot be compensated for by explaining their effect in notes.

If an authority is of the view that an alternative policy is more effective, the financial statements should follow the Code requirements and set out the impact of the alternative policy in the notes.



6 3.4.2.22 True and fair override

In the extremely rare circumstances in which management concludes that compliance with a requirement of the Code would be so misleading that it would prevent the financial statements achieving a true and fair view, an authority shall depart from that requirement. In doing so, an authority shall disclose that:

a) management has concluded that the financial statements present a true and fair view of the entity’s financial position, financial performance and cash flows

b) it has complied with the Code, except that it has departed from a particular requirement to achieve a true and fair presentation

c) the nature of the departure, including the treatment that the Code would require, the reason why that treatment would be so misleading in the circumstances that it would prevent the financial statements presenting a true and fair view, and the treatment adopted, and

d) for each period presented, the financial effect of the departure on each item in the financial statements that would have been reported in complying with the requirement.

The Code has been prepared carefully to interpret accounting standards so as to secure a true and fair treatment for the great majority of circumstances that local authorities will find themselves in. However, occasions may arise where the Code’s requirements would result in less than the best possible treatment of a transaction or balance in terms of recognising it, measuring it or disclosing it in the Statement of Accounts. If such occasions have such a substantial impact that the responsible financial officer is not able to certify that the Statement of Accounts gives a true and fair view, then this principle requires the authority to depart from the Code.

The principle will not apply to situations where statutory accounting provisions contradict the Code, as the former take precedence automatically. Instead, the override provision is only likely to apply in the very rare circumstances that:

� an authority enters into a transaction (eg a complex new financial instrument) that is so exceptional that the adaptations in the Code are not sophisticated enough to cope with it adequately

� an authority considers that the Code has misinterpreted the underlying standards in adopting them

� the limitations that the Code has applied in adopting standards to ensure comparability between authorities do not allow true and fair treatment for the individual authority.

Where such circumstances are determined to apply, the principle sets out clearly the action an authority must take.



7 3.4.2.23 Going Concern

A local authority’s financial statements shall be prepared on a going concern basis; that is, the accounts should be prepared on the assumption that the functions of the authority will continue in operational existence for the foreseeable future. Transfers of services under combinations of public sector bodies (such as local government reorganisation) do not negate the presumption of going concern.

The Code stipulates that the financial statements are prepared on a going concern basis. They are therefore drawn up under the Code to assume that a local authority’s services will continue to operate for the foreseeable future. This assumption is made because local authorities carry out functions essential to the local community and are themselves revenue-raising bodies (with limits on their revenue-raising powers arising only at the discretion of central government). If an authority were in financial difficulty, the prospects are thus that alternative arrangements might be made by central government either for the continuation of the services it provides or for assistance with the recovery of a deficit over more than one financial year. The Code is clear that transfers of services under combinations of public sector bodies (such as local government reorganisation) do not negate the presumption of going concern. See paragraphs A23 to A27 of Module 2 for further discussion.

8 3.4.2.24 Accruals

A local authority shall prepare its financial statements, except for cash flow information, using the accrual basis of accounting, ie the authority recognises items as assets, liabilities, income and expenses (the elements of financial statements) when they satisfy the definitions and recognition criteria for those elements in the Code.

See paragraphs A19 to A22 of Module 2 for further discussion.



9 3.4.2.25 Similar and dissimilar items

A local authority shall present separately each material class of similar items. A local authority shall present separately items of a dissimilar nature or function unless they are immaterial.

This provision has two main effects:

� where items are similar, they should be grouped together in the financial statements, even if they are then given a more detailed breakdown on the face of one of the statements or in the notes

� where items are dissimilar (particularly where their treatment is not covered by a common accounting policy), they should not be aggregated unless the impact is certain to be immaterial – this principle will apply at the lowest level of disclosure; for example, on the face of the Balance Sheet, Property, Plant and Equipment will aggregate assets measured at historical cost and fair value, but the different categories will need to be separated in a note.

10 3.4.2.26 Immaterial disclosures

A local authority need not provide a specific disclosure required by the Code if the information is not material.

Under this provision authorities are given a comprehensive discretion to disregard Code requirements for disclosures, provided that the information is deemed immaterial. Care needs to be taken to ensure that there would be no readership issues arising from the omission of the information, particularly by considering the qualitative aspects of materiality. For instance, the figures in the note of audit costs are likely to be immaterial in the context of an authority’s overall expenditure, but the purpose of the note is to confirm the independence of the auditor by disclosing the relative amount of fees for non-audit and audit work.



11 3.4.2.27 Offsetting

A local authority shall not offset assets and liabilities or income and expenses, unless required or permitted by the Code.

The general requirement is that balances and transactions are recognised gross rather than netted off each other. Most commonly, where an activity is supported by grants, an authority will disclose the grant-aided expenditure and the grant as an expense and income, rather than just treating the net amount as expenditure. Similarly, amounts due to and from the same party are shown separately unless contractual arrangements specify that the authority has a right to set off the recognised amounts.

The only specific provisions concerning offsetting are those in section 7.4.5 of the Code, relating to financial instruments. However, the principles in that section can be applied more generally (that is, a legally enforceable right to set off, and an intention to settle net).

12 3.4.2.28 Annual presentation

A local authority shall present a complete set of financial statements (including comparative information) annually.

This principle confirms the requirements already provided for in the statutory framework and the Code.

13 3.4.2.29 Comparative figures

Except when the Code permits or requires otherwise, a local authority shall disclose comparative information in respect of the previous period for all amounts reported in the current period’s financial statements.

This requirement means that every current year figure disclosed in the financial statements should have a prior year comparative.

The specific exemption from providing comparatives is in paragraph 8.2.4.2 of the Code and relates to disclosure of the movements in provisions over the year.

14 3.4.2.29 Additional comparative information

To ensure a true and fair presentation of its financial statements, a local authority shall apply paragraphs 38A to 38D of IAS 1, as relevant to its circumstances and as appropriate.

In addition to the Code’s requirements for providing minimum information, an authority may present selected additional comparative information as long as that information is prepared in accordance with Code requirements.

See paragraphs 38A to 38D of IAS 1 for further guidance in this area.



15 3.4.2.30 and 3.4.2.31

Reclassification of items

When a local authority changes the presentation or classification of items in its financial statements, the authority shall reclassify comparative amounts unless reclassification is impracticable. When comparative amounts are reclassified, the authority shall disclose (including as at the beginning of the preceding period):

a) the nature of the reclassification

b) the amount of each item or class of items that is reclassified, and

c) the reason for the reclassification.

When it is impracticable to reclassify comparative amounts, an authority shall disclose:

a) the reason for not reclassifying the amounts, and

b) the nature of the adjustments that would have been made if the amounts had been reclassified.

This principle only applies where reclassification takes place voluntarily and not as a result of some event taking place during the year. For instance, if the uncertainties surrounding a provision are removed and the balance is reclassified as a creditor, this conversion is an in-year event that would not normally require an adjustment to comparative amounts.

Examples of adjusting reclassifications will thus be relatively rare (see next item).

16 3.4.2.32 A local authority shall retain the presentation and classification of items in the financial statements from one period to the next unless:

a) it is apparent, following a significant change in the nature of the authority’s operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in the Code, or

b) the Code requires a change in presentation.

This provision confirms that reclassification should be relatively rare, requiring the presentation and classifications used in previous financial years to be carried forward unless there is a positive reason for change. Either the previous treatment has to have become inappropriate or the Code requires the change.

17 3.4.2.33 A local authority shall present group accounts in addition to its single entity financial statements where required by chapter nine of the Code.

This provision reiterates requirements set out in chapter nine of the Code.



18 3.4.2.34 When presenting group accounts, an authority that recognises its interest in a jointly controlled entity using proportionate consolidation shall either:

� combine its share of the assets, liabilities, income and expenses of the jointly controlled entity with the similar items, line by line, in its financial statements, or

� include separate line items for its share of the assets, liabilities, income and expenses of the jointly controlled entity in its financial statements.

This provision reiterates requirements set out in chapter nine of the Code.

19 3.4.2.35 A local authority shall clearly identify the financial statements and distinguish them from other information in the same published document.

This can most straightforwardly be done by a table of contents that distinguishes other information from the Statement of Accounts (and then distinguishes the part of the Statement of Accounts that comprises the financial statements). Headers or footers can then be used to carry this separation through into the published document.

Web-based publication could follow a similar process, with the individual financial statements being accessed via links gathered together under a financial statements heading.

The Statement of Accounts will also be distinguishable as a discrete document as its contents will be referenced in the certificate of the responsible financial officer (England and Wales) and the audit report.



20 3.4.2.36 An authority shall clearly identify each financial statement and the notes. In addition, a local authority shall display the following information prominently, and repeat it when necessary for the information presented to be understandable:

a) the name of the authority

b) the date of the end of the reporting period or the period covered by the set of financial statements or notes, and

c) the level of rounding used in presenting amounts in the financial statements.

This principle will firstly be satisfied where any page of the Statement of Accounts would pass a simple test: if the page were to fall out of the document, would the person picking it up be able to tell which authority’s accounts it had come from and for which financial year and be able to determine that it was a particular financial statement? A similar test would be applied to web-based publication – if a browser came across a particular page, would they be able to tell what it was and what document it came from?

Again, this is most straightforwardly achieved through the effective use of headers and footers.

In relation to roundings, the principle does not require a single level of rounding to be used consistently across the whole Statement of Accounts. Different levels may be relevant on the face of particular financial statements and in the notes to the accounts. The practical requirement is that every time that rounding is applied, a clear specification of the level is required. This will simply involve the relevant figures being headed up with (eg) £m or £000s as appropriate.

B EXPLANATORY FOREWORD

Please see the following section of the Code

Section 3.1

Introduction B1 The Code affirms the need for an explanatory foreword to be published with the financial

statements, fulfilling a similar purpose to a directors’ report in company accounts. The explanatory foreword should provide a concise and understandable guide for the reader of the accounts of the most significant aspects of an authority’s financial performance, year-end financial position and cash flows. Scottish authorities should note that The Local Authority Accounts (Scotland) Regulations 2014 (SSI 2014/200) specify that a ‘management commentary’ is to be provided. Additional, separate guidance on the management commentary is currently being drafted by the Scottish Government (see paragraph 25 of Scottish Local Government Finance Circular 7/2014).

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B2 Paragraph 1.5.3 of the Code requires that the foreword is ‘to’ rather than ‘in’ the Statement of Accounts. This is an important distinction in that it establishes that the foreword is not formally part of the Statement of Accounts and is not then covered directly by the statutory requirements for an audit opinion or (in England and Wales) certification by the responsible financial officer. The foreword then needs to be prepared so that it is consistent with the Statement of Accounts but is not formally bound by true and fair requirements. This means that any figures that are used in the foreword do not have to be based on the Code’s provisions if they would help present the authority’s messages more effectively (whilst remaining consistent with the figures in the Statement of Accounts).

B3 Paragraph 3.1.1.2 of the Code places a limitation on the foreword in that it confirms that its purpose is not to comment on the policies of the authority. This does not mean that the foreword should be free of details of strategic objectives and spending priorities, as it may be impossible to give a proper explanation of the authority’s financial performance and position without some political context. The limitation should instead be read as prohibiting attempts to persuade readers to hold a particular view about the authority’s policies.

B4 Apart from this limitation, the Code is clear that the content and style of the foreword should be a matter of local judgement.

Recommended Topics for Inclusion in the Explanatory ForewordB5 Paragraph 3.1.4.1 of the Code recommends that certain topics are included in the foreword,

on the basis that they are likely to be significant to an understanding of the financial statements.

a) An explanation of which statements follow, their purpose and the relationship between them.

This recommendation is usually met by way of a brief guided tour to the statements, explaining the key messages given by each statement.

This explanation can be enhanced by inclusion of the headline figures from each statement in these descriptions (eg Surplus or Deficit on the Provision of Services; net worth in the Balance Sheet) in order to support the significance of the individual statements.

b) Service expenditure, interest payable and other operating costs, income from grants, local taxpayers and other sources, compared in overall terms to the budget.

The main purpose of this recommendation is to compare outturn figures to budgets, which often provides a better indication of financial stewardship in the current year than comparison to prior year outturn.

c) A note of any material assets acquired or liabilities incurred. If these are unusual in scale, having regard to the normal activities of the authority, or for any other reason, the circumstances shall be explained.

Paragraph 3.4.2.53 of the Code requires the nature and amount of material items of income or expense to be disclosed separately. This recommendation supports that requirement by ensuring that material new assets and liabilities are also reported.

Where there have been no material new items, this fact might usefully be reported.


d) A note explaining the significance of any pensions liability or asset disclosed.

As the pensions liability is likely to have a highly significant impact on the net worth of an authority (particularly where pension schemes are unfunded), this impact merits particular explanation.

e) An explanation of any material and unusual charge or credit in the accounts. This shall be provided whether the charge is made as part of the cost of services or as an adjustment to the cost of services.

This recommendation complements the requirement of paragraph 3.4.2.53 of the Code for separate disclosure of material items of income and expense in the notes to the accounts. Unusual items included in that note should be highlighted in the foreword and explained in more detail, including those charged or credited to both the Comprehensive Income and Expenditure Statement and the Movement in Reserves Statement.

f) Any significant change in accounting policies. The reason for the change, and the effect on the accounts, shall be explained.

The impact of changes in accounting policies will be detailed in the notes to the financial statements. This recommendation encourages a summary of such changes where they are significant. ‘Significant’ in this context could be read to exclude technical accounting changes that do not have a material practical effect on financial performance or position.

g) Any major change in statutory functions, eg local government reorganisation, which has a significant impact on the accounts. In addition, a comment on planned future developments in service delivery, including a summary of revenue and capital investment plans, distinguishing between expenditure intended to maintain existing levels of service provision and that intended to expand existing services or develop new services and the impact of any reduction in services.

Major changes such as reorganisation and housing stock transfers that have taken place in the year will have had a fundamental impact on the financial statements and will have been given full disclosure. For those changes, this recommendation encourages an up-front explanation of those changes and a summary of the impact.

Future developments will only have been reflected in the financial statements or notes where events have taken place before the accounts are authorised for issue. The explanatory foreword can usefully set out the potential implications of changes in government or authority policy.

h) A note of the authority’s current borrowing facilities and capital borrowing, outlining the purpose and impact of financing transactions entered into during the year and major non-current asset acquisitions and disposals.

For many authorities, the outstanding balance of loans will be an incomprehensibly substantial balance for most readers of the accounts. This recommendation allows an authority to explain how its level of borrowing is prudent and justified by its capital investment programme. Useful context would be provided by reference to the fair value of the authority’s non-current assets and the Capital Financing Requirement.

i) A summary of the authority’s internal and external sources of funds available to meet its capital expenditure plans and other financial commitments including PFI schemes.

This provides an opportunity to give assurance that the authority’s financial position and future prospects support its plans for capital investment.


j) Details of significant provisions or contingencies and material write-offs. This disclosure should focus on new items and any significant changes to existing items.

As transactions requiring provisions and write-offs to be made can be significant to an authority (eg losses relating to Icelandic banks) but also involve uncertainties, it will be useful to provide a clear consolidated summary and explanation of all such losses.

(‘Write offs’ in this context should be read to include revaluation and impairment losses.)

k) Details of any material events after the reporting date (up to the date the accounts are authorised for issue).

These events will have been reflected in the financial statements, but adjusting events might not have been given the prominence that non-adjusting events have (which require a note). A summary of all material events in the explanatory foreword can therefore be helpful in confirming comprehensively the overall effect.

l) An explanation of the impact of the current economic climate on the authority and the services it provides.

Where the current economic climate has had a direct effect on the authority, this will be reflected in the financial statements (eg in the impairment of assets). This recommendation provides an opportunity to summarise these effects, but also to provide a forward-looking prognosis for the adequacy of the authority’s financial resources.

Issues of particular interest relating to the longer-term effects of the economic downturn might include:

� the extent to which particular spending plans and budgeted income were affected during the year

� the adequacy of balances and reserves to withstand future financial pressures

� how the values of the authority’s assets (and liabilities) have been or might be affected.

B6 The explanatory foreword is also an appropriate place to clarify the relationships between the Statement of Accounts and the other financial information that the authority reports externally. This might be especially relevant for plans that have been published in advance of the availability of outturn figures, where the Statement of Accounts provides an opportunity to provide a more up-to-date context for the plans and the authority’s performance.

B7 As the purpose of the explanatory foreword is to make local authority accounts comprehensible to a wide audience, authorities should use non-technical language in describing what are often complex matters and avoid the use of jargon. Care should be taken not to overwhelm the reader with detail or to obscure the real picture of the authority’s financial standing.

Recommended Practice B8 Entities in the private sector and other public benefit entities are required to produce a

directors’ report (or equivalent statement), one element of which is a business review. This element is the closest parallel to the explanatory foreword that local authorities are required to produce.

B9 Many entities in the private and public sector meet the requirement for a business review by preparing an operating and financial review (OFR). The Accounting Standards Board (ASB)


issued a Reporting Statement (RS) relating to the OFR in January 2006. It contains seven principles that can provide a useful basis for the production of the explanatory foreword of a local authority. The following table adapts these seven principles for local government:

Purpose Commentary

The explanatory foreword should set out an analysis of the authority through the eyes of management.

Authorities that draft the foreword as a personal report from the member responsible for finance or the director of finance (rather than just put their name at the bottom) have taken a significant step to satisfying this principle.

The intention is that management should use its expert knowledge of the authority’s financial affairs to illuminate the accounts by:

� adding more detail to the significant aspects of the information about the authority’s financial performance and financial position already in the financial statements

� providing an assessment as to whether the authority has performed well during the year in using its revenue and capital resources

� advising on the strategies management will implement to achieve the authority’s corporate objectives, specific performance measures that they might regularly review to achieve those objectives and significant risks that the authority is exposed to.

The explanatory foreword should focus on matters that are relevant to the interests of the principal users of the accounts.

This principle presents difficulties for local authorities, who have a multiplicity of potential users. The foreword cannot be written for a single ideal reader. Some sections will therefore require more detail or merit the use of more technical terminology. However, each section should have a clearly intended readership and be written to meet the assessed needs of that readership.

The explanatory foreword should have a forward-looking orientation, identifying those trends and factors relevant to the users’ assessment of the current and future performance of the authority and the progress towards the achievement of its long-term objectives.

It has traditionally been the case that the foreword is a backward-looking document. There is greater justification for this in the local government than in the private sector, as the annual budgeting process means that individual financial years are more capable of being assessed in isolation. However, issues that should be addressed are those that affected the authority’s development, performance and position during the current year and that are likely to impact on the future development, performance and position.

Issues might include:

� An explanation of resources, principal risks and uncertainties that will impact on the performance or position of the authority. For example, the changing budgetary situation of local authorities is likely to be a resource issue and an area of significant risk and uncertainty for most local authorities in the current economic environment.

� An analysis of trends or factors that management believe will impact on future prospects. Again, the current economic environment, budgetary trends and pensions forecast may be of interest to users of the financial statements.

� Information on future targets (eg key performance information) which management uses to measure achievement of their objectives.

The ASB’s Reporting Statement acknowledges concerns about the disclosure of forward-looking information. Management may wish to indicate that such information should be treated with caution and explain the uncertainties inherent in such information.


Purpose Commentary

The explanatory foreword should complement as well as supplement the financial statements, in order to enhance the overall corporate disclosure.

The foreword should extend the information in the financial statements to incorporate contextual information that:

� provides additional explanations of amounts recorded in the financial statements

� explains the conditions and events that have shaped the information contained in the financial statements.

Relevant complementary information might come from sources such as the revenue budget, the capital programme and the treasury management policy.

The explanatory foreword should be comprehensive and understandable.

Presentation should be clear and generally avoid unnecessary use of technical terminology. The balance between narrative, tabular and graphical presentation should be carefully judged if it is to be effective.

The explanatory foreword should be balanced and neutral, dealing even-handedly with both good and bad aspects.

Management should maintain a balance between good and bad news, give details of unfavourable events and include information about setbacks as well as positive events.

The explanatory foreword should be comparable over time.

This should mean that management provides consistent measures of performance from year to year and that the content of the foreword is consistent (within the boundaries of ensuring that the information is relevant) from year to year.

Voluntary/Optional Approach to the Production of the Explanatory Foreword

B10 The preceding paragraphs of this section reflect the requirements of the Code since the implementation of IFRS in 2010/11. The Code includes an encouragement for local authorities to prepare the Explanatory Foreword taking into consideration the provisions of paragraphs 5.2.6–5.2.8 of Government’s Financial Reporting Manual (FReM) where these paragraphs disclose information relevant to local authorities.

B11 If authorities opt to take the FReM into consideration this might not necessarily mean that substantial amendment will be needed to the format that an authority has traditionally used.

B12 The FReM disclosures may be used effectively to provide a checklist against which practitioners can analyse the adequacy of their existing format and demonstrate the performance and financial position of the authority.

B13 Paragraphs 5.2.6 to 5.2.8 of the FReM contain a mixture of direct requirements for disclosures, as well as cross-references to requirements set out in the Companies Act 2006 (as amended). In summary, the consolidated requirements are for:


Requirement Discussion

Disclosure of the matters required to be disclosed in a strategic report under section 414C of the Companies Act 2006, as interpreted in this table for their relevance to local government:

� (S414C(1)) ‘Members’ should be interpreted to be all users of the accounts.

� (S414C(2)and s414C(3)) The strategic report should be self-standing and comprehensive in its scope. However, some information might be given in other documents in the cycle of accountability to the public such as budget outturn reports. In such cases, the strategic report should provide summarised information with adequate cross-references to the other documents.

� (S414C(7)(a)) The strategic report should disclose, where applicable, the financing implications of significant changes in an authority’s objectives and activities, its investment strategy and its long-term liabilities (including significant provisions and PFI and other leasing contracts) in the light of the spending review settlement and its impact on the budget and resources of the authority.

� Sections 414C(7)(b)(i) and (iii) require information on environmental matters and social, community and human rights issues respectively (see paragraph B14).

� It is recommended that the interpretation of directors and senior managers in the Companies Act 2006 (S414C (8) to (10)) for local authorities should be aligned to the term ‘senior employees’ as defined in The Accounts and Audit Regulations in (England and Wales) and The Local Authority Accounts (Scotland) Regulations 2014.

Taking into account the suggested disclosures, the relevant requirements derived from the Companies Act and adapted for local government use for the contents of a strategic report are:

� A fair review of the authority’s business.

� A description of the principal risks and uncertainties facing the authority.

� A balanced and comprehensive analysis of the development and performance of the authority during the financial year and the position of the authority at the end of that year.

� To the extent necessary for an understanding of the development, performance or position of the authority, the strategic report should provide:

a) analysis using financial key performance indicators

b) where appropriate, analysis using other key performance indicators, including information relating to environmental matters and employee matters.

(‘Key performance indicators’ means factors by reference to which the development, performance or position of the authority’s activities can be measured effectively.)

� To the extent necessary for an understanding of the development, performance or position of the authority the strategic report should include:

a) the main trends and factors likely to affect the future development, performance and position of the authority, and

b) information about:

i) environmental matters (including the impact of the authority’s activities on the environment)

ii) the authority’s employees, and



� (S414C(4)) Authorities should disclose performance against their key performance indicators. It is recommended that any performance indicators used be those that most effectively monitor the authority’s performance against its strategic objectives.

iii) social, community and human rights issues, including information about any policies of the authority in relation to those matters and the effectiveness of those policies.

(If the strategic report does not contain information of each kind mentioned in paragraphs b)i), ii) and iii), it should state which of those kinds of information it does not contain.)

� The strategic report should include a description of:

a) an authority’s strategy and business model (the latter is likely to be covered by a brief description of the financial, operating and regulatory environment in which the authority operates)

b) a breakdown of the number of persons at the end of the financial year of each sex who are directors or senior managers of the authority

c) a breakdown of the number of persons at the end of the financial year of each sex who are employees of the authority

� The strategic report should include such matters of strategic importance to the authority.

� The review should, where appropriate, include references to, and additional explanations of, amounts included in the authority’s financial statements.

Note that the Companies Act requirements set out the disclosure requirements of section 414 relating to any person with whom the authority has contractual or other arrangements if the disclosure would, in the opinion of the authority, be seriously prejudicial to that person and/or contrary to the public interest.



Disclosure of the matters specified in paragraph 5.2.8 of the FReM.

These disclosures (amended to use local government terminology) are:

a) A comparison of outturn against budget, with detailed explanations of the causes of significant variances where applicable.

b) [Not applicable.]

c) A description of the entities within the group accounting boundary.

d) [Not applicable.]

e) A description of the reporting cycle, including an outline of the matters covered in reports made during the year, and information about how readers can obtain these documents.

f) Commentary on the authority’s significant remote contingent liabilities (ie those that are not disclosed under IAS 37) to enable the reader to understand their nature and what steps the authority is taking to minimise the risk of their crystallising.

g) [Not applicable.]

h) [Not applicable.]

i) An explanation of the adoption of the going concern basis where this might be called into doubt, for example where there are significant net liabilities that will be financed from grant-in-aid, eg in the future.

Note a number of these disclosures are already recommended in the Explanatory Foreword or in other financial reporting requirements; it may be appropriate to cross-refer to these. In addition under a voluntary approach authorities might consider that some of these disclosures are not materially relevant to the performance and financial position of the authority provided in its Explanatory Foreword.

B14 Paragraph 5.2.6 of the FReM refers to reporting entities in the FReM producing a sustainability report within the strategic report. Paragraph 3.1.1.1 of the Code sets out that, unlike the FReM, the Code does not require local authorities to prepare a sustainability report; but neither does the Code prevent an authority including such information within its Explanatory Foreword. Authorities may therefore wish to consider their information requirements on environmental and sustainability reporting issues in their Explanatory Foreword and how this might be able to augment the reporting requirements of the foreword, ie how it relates to the financial performance or financial position of the authority. Cross-references to other relevant corporate reports may be appropriate. The Financial Reporting Council (FRC) has issued non-mandatory guidance supporting the strategic report requirements in the new Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. Authorities might find this guidance useful in drafting their Explanatory Foreword.


C STATEMENT OF RESPONSIBILITIES


Paragraphs 3.2.1 to 3.2.4

IntroductionC1 Paragraph 3.2.4.1 of the Code contains a model disclosure of the authority’s and the chief

financial officer’s responsibilities for the Statement of Accounts. Authorities have generally been able to adopt this model without substantial amendment.

C2 The Code requires that the chief financial officer should sign and date the Statement of Accounts under a statement that the accounts give a true and fair view of the financial position of the authority at the accounting date and its income and expenditure for the year then ended.

C3 In England, The Accounts and Audit (England) Regulations 2011 require the Statement of Accounts prepared by 30 June to be certified by the responsible financial officer (RFO). The financial statements are then required to be certified again by the RFO immediately before approval by a committee of the council or otherwise by a resolution of the (local government) body meeting as a whole. Such signatures would traditionally be positioned at the foot of the Balance Sheet, but they could also conveniently be fitted into the Statement of Responsibilities.

C4 In Wales, The Accounts and Audit Regulations 2005 have been amended by The Accounts and Audit (Wales) (Amendment) Regulations 2010 (SI 2010/683 (W.66)). The amended regulations also require the Statement of Accounts prepared by 30 June to be certified by the RFO. The financial statements are then required to be certified again by the RFO immediately before approval by a committee of the council or otherwise by a resolution of the (local government) body meeting as a whole. Again, such signatures would traditionally be positioned at the foot of the Balance Sheet, but they could also conveniently be fitted into the Statement of Responsibilities.

C5 In Scotland, The Local Authority Accounts (Scotland) Regulations 2014 (SSI 2014/200) include a requirement for the accounts to be certified by the proper officer as providing a ‘true and fair view’ of the financial position and transactions of the authority and its group. Finance Circular 7/2014 provides an illustrative example of the Statement of Responsibilities based on the guidance in the Code. The regulations further specify that the unaudited accounts must be submitted to the auditor by 30 June and to the local authority (or an audit or governance committee or equivalent) by 31 August.

C6 In Northern Ireland, The Local Government (Accounts and Audit) Regulations (Northern Ireland) 2006 requires the Statement of Accounts prepared by 30 June to be certified by the chief financial officer (CFO) (see also paragraph B14 of Module 1). Again, such signatures would traditionally be positioned at the foot of the Balance Sheet, but they could also conveniently be fitted into the Statement of Responsibilities.


D ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS


Section 3.3

Introduction D1 Paragraph 3.3.1.1 of the Code requires that authorities follow the requirements of IAS 8

Accounting Policies, Changes in Accounting Estimates and Errors when selecting or changing accounting policies, adopting the accounting treatment and disclosing the changes in accounting policies, changing estimation techniques, and correcting errors. An exception is made where adaptations of IAS 8 to fit the public sector are set out in the Code.

D2 The Code also notes that IPSAS 3 Accounting Policies, Changes in Accounting Estimates and Errors (based on IAS 8) does not add any additional accounting requirements but it may be a useful source of reference for local authorities.

Impact of New Standards

D3 Per paragraph 3.3.1.2 of the Code, IAS 8 requires entities to disclose the expected impact of new standards that have been issued but not yet adopted. The disclosure requirements in relation to new standards are set out in paragraph D53 below.

Selection and Application of Accounting Policies D4 Accounting policies are defined in paragraph 3.3.2.1 of the Code as ‘the specific principles,

bases, conventions, rules and practices applied by an authority in preparing and presenting financial statements’.

D5 Paragraph 3.3.2.9 of the Code requires that where the Code applies to a transaction, other event or condition, an authority should determine the accounting policy or policies to be applied to that item with direct reference to the requirements of the accounting policies stipulated by the Code.

Materiality and Accounting Policies

D6 Accounting policies need not be applied if the effect of applying them would be immaterial. Materiality is defined in paragraph 3.3.2.4 of the Code as it applies to omissions and misstatements:

Omissions or misstatements of items are material if they could, individually or collectively, influence the decisions or assessments of users made on the basis of the financial statements. Materiality depends on the nature or size of the omission or misstatement judged in the surrounding circumstances. The nature or size of the item, or a combination of both, could be the determining factor.


The definition is consistent with the fundamental qualitative characteristics of financial information discussed in the Code and the IASB’s Conceptual Framework (as a subsidiary concept of relevance) and so may be applied to the application of accounting policies, particularly as the non-application of an accounting policy will often lead to an omission or a misstatement (paragraph 2.1.2.9 of the Code).

D7 In applying the definition of materiality, an authority should refer to the characteristics of the financial statements provided by the Code with reference to the IASB’s Conceptual Framework (see paragraphs A36 to A43 of Module 2). The Code states that users of the financial statements are assumed to have a reasonable knowledge of accounting and of local government and will use reasonable diligence in reading the financial statements. Considerations of materiality will need to reflect this assumed knowledge of the prime users of an authority’s financial statements when judging the economic decisions and assessments of stewardship of its resources that could reasonably be influenced by different bases for disclosure of information.

D8 An authority should start from a presumption that the accounting policies prescribed by the Code should be followed. Departure is permitted only once it can be established that omission, or a different or less a rigorous approach, does not risk a misreading of the authority’s overall financial position, financial performance or cash flows (or any part of it) that might be relevant to the decision-making needs or assessments of the primary users of the financial statements.

D9 Paragraph 8 of IAS 8 also notes that it is inappropriate to make or leave uncorrected immaterial departures from IFRS to achieve a particular presentation, financial position or cash flows. Judgement will need to be made with careful assessment to the economic decisions and assessments of stewardship made by the users of the financial statements. For example, for the authority as a whole, it might be immaterial to revalue plant and equipment. However, the understatement of depreciation that would result for a trading account might allow it to break even when full compliance with the Code would have resulted in a loss being recognised.

Transactions Outside the Scope of the Code

D10 Where the Code does not specifically apply to a transaction, other event or condition, a local authority should use its judgement in developing or applying an accounting policy which results in financial information which is relevant to the decision-making and assessment needs of users. Paragraph 3.3.2.9 of the Code also requires that policies are reliable; ie they:

� represent faithfully the financial position, financial performance and cash flows of the entity – the policy should recognise and measure effectively the income and expense incurred and the assets and liabilities created, increased, reduced or extinguished as a result of a transaction or event

� reflect the economic substance of transactions, other events and conditions and not merely the legal form – the legal form of a transaction does not always represent its economic reality and may need to be overridden; eg an authority can hold the legal title to a property but control none of the future economic benefits or service potential that the property will generate


� are neutral, ie free from bias – financial statements are not neutral if a particular accounting policy has been selected in a manner designed to influence the making of a decision or assessment in order to achieve a predetermined result or outcome

� are prudent – paragraph 37 of the IASB Framework defines prudence as ‘the inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated’, and

� are complete in all material respects.

D11 On occasions where the Code does not specifically apply to a transaction, a local authority will still need to use the Code for its principal source of guidance. It should consider the applicability of the following:

� the Code’s provisions in relation to similar transactions, and related issues

� the definitions, recognition and measurement criteria for assets, liabilities, income and expenses described in chapter two of the Code – see paragraphs A81 to A111 of Module 2.

Note that paragraph 11 of IAS 8 requires that these two provisions be applied in descending order – ie practitioners should consider the Code’s provisions in relation to similar transactions before carrying out a ‘first principles’ analysis based on the definitional criteria.

D12 Local authorities may also consider recent pronouncements by standard setters, and accepted accounting practices within the public sector, but only in so far as these do not conflict with the provisions of the Code. Please also see paragraphs A13 to A16 of Module 1.

Consistency

D13 Paragraph 3.3.2.11 of the Code requires that authorities select and apply their accounting policies consistently for similar transactions, other events and conditions. If the Code specifically requires or permits different accounting policies for categories of similar items, an authority should apply an appropriate policy for each of the categories in question and apply these accounting policies consistently for each category. The Code provides the example of different classes of property, plant and equipment, some of which are carried at fair value and some at historical cost.

Changes in Accounting Policies

D14 Paragraph 3.3.2.12 of the Code requires that a change in accounting policy should only be made if the change:

� is required by the Code, or

� will result in the financial statements providing reliable and more relevant financial information about the effects of transactions, other events or conditions on an authority’s financial position, financial performance and cash flows.

D15 In accordance with the qualitative characteristic of comparability (which depends on consistency and adequate disclosure), an authority should apply the same accounting policy consistently from one period to the next (and within each period), until one of the two conditions for change is satisfied. The users of the financial statements need to be able


to compare financial statements and information over time in order to be able to evaluate trends in its financial position, financial performance and cash flows (IAS 8, paragraph 15).

D16 It is likely that significant changes in accounting policy other than those specified by the Code will be relatively rare. This is because the Code specifies the accounting policies for a high percentage of the typical transactions, items, events or other conditions that are faced by local authorities (see paragraphs A5 and A6 of Module 2). In addition, some of the options offered by IFRS have been limited by the Code. Examples include the measurement after recognition of property, plant and equipment and options for designation of certain financial instruments.

D17 There are therefore limited opportunities for an authority to choose an accounting policy (as opposed to a basis for estimating figures that will satisfy that policy). Recognition, measurement bases and presentation treatments are specified for the most significant transactions by the Code. However, choices in accounting policies do still exist in the Code, eg in relation to the capitalisation of borrowing costs or where the Code is silent on an unusual transaction.

D18 Paragraph 16 of IAS 8 states that the introduction of an accounting policy to account for transactions or events that are different in substance from those previously occurring (ie where circumstances have changed) is not a change in accounting policy. Likewise, adopting an accounting policy for transactions, other events or conditions that did not occur previously or that were immaterial is not a change in accounting policy and therefore would be applied prospectively.

D19 An example of the situation where a change in circumstances would not meet the Code’s requirements for a change in accounting policy would be where a local authority changes the use of a property. For instance, an authority might move staff out of a building it previously used for administrative purposes and designate the property instead as an investment property. This would mean a slightly different definition of fair value and a different treatment of revaluation gains and losses. However, this is not a change in accounting policy and so no restatement of comparative amounts should be made.

Applying a Change in Accounting Policy

D20 Paragraph 3.3.2.13 of the Code requires that a change in accounting policy is applied retrospectively unless the Code stipulates particular transitional arrangements. Specific transitional provisions are often included in new or revised standards rather than full retrospective application, and the Code will specify transitional arrangements for new standards adopted by the Code where retrospection is impracticable for local government as a whole.

D21 Retrospective application is defined in paragraph 3.3.2.7 of the Code as ‘applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied’. The restated accounts should thus be cleared of the effects of the previous accounting policy, and balances and comparative transactions should be recalculated to apply the policy from the date the income, expense, asset or liability was first recognised.

D22 The Code sets out how a change will need to be implemented in the financial statements:


� adjusting the opening balance of each affected component of net worth for the earliest period presented, and

� adjusting the other comparative amounts disclosed for each prior period presented

to the extent that it is practicable to determine period-specific and cumulative effects (see paragraph D24).

D23 When an authority applies a change in accounting policy retrospectively or makes a retrospective restatement, or when it reclassifies items, paragraph 3.4.2.17 of the Code (in accordance with paragraphs 40A–40D of IAS 1) requires that it presents an additional Balance Sheet at the beginning of the preceding period (ie a third Balance Sheet) where those adjustments have a material effect on the information in the third Balance Sheet. When an authority is required to present an additional Balance Sheet, it must disclose the information required by paragraphs 3.4.2.30 and 3.4.2.31 of the Code and paragraphs 41–44 of IAS 1 and IAS 8 (see row 14 ‘Reclassification of items’ in the table at paragraph A8 above for further explanation). However, the authority is not required to present the related notes to the third Balance Sheet.

D24 The Code recognises that it is sometimes difficult to achieve comparability of prior periods with the current period. For example, data might not have been collected in the prior periods in a way that allows retrospective application of a new accounting policy. Paragraph 3.3.2.3 of the Code sets out the circumstances where, exceptionally, retrospection can be assessed as impracticable:

Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so. For a particular prior period, it is impracticable to apply a change in an accounting policy retrospectively or to make a retrospective restatement to correct an error if:

a) the effects of the retrospective application or retrospective restatement are not determinable

b) the retrospective application or retrospective restatement requires assumptions about what management’s intent would have been in that period, or

c) the retrospective application or retrospective restatement requires significant estimates of amounts and it is impossible to distinguish objectively information about those estimates that:

i) provides evidence of circumstances that existed on the date(s) at which those amounts are to be recognised, measured or disclosed, and

ii) would have been available when the financial statements for that prior period were authorised for issue

from other information.

D25 Restating comparative information for prior periods often requires complex and detailed estimation. This, in itself, does not prevent reliable adjustments. When making estimates for prior periods, the basis of estimation should reflect the circumstances that existed at the time. It is self-evident that it becomes increasingly difficult to define those circumstances with the passage of time.


D26 Additionally, the passage of time means that such estimates and circumstances might be influenced by knowledge of events and circumstances that have arisen since the prior period. Retrospective application is not possible in circumstances where it is not possible to determine, from the totality of information currently available, the information that provides evidence of the circumstances on the date the transaction or event occurred and that would have been available when the accounts for that year were authorised for issue.

D27 Paragraph 53 of IAS 8 does not permit the use of hindsight when applying a new accounting policy, either in making assumptions about what management’s intentions would have been in a prior period or in estimating amounts to be recognised, measured or disclosed in a prior period. The prohibition on the use of hindsight is discussed in more detail in paragraph D45.

D28 Paragraphs 23 to 27 of IAS 8 set out the treatment for the two types of impracticability exceptions on retrospective application:

� Period-specific amounts – when it is impracticable to determine the period-specific effect of a change in accounting policy on comparative information for one or more prior periods presented, an authority is instead required to apply the new accounting policy to the carrying amounts of the assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable (which might be the current period). The authority will then need to make a corresponding adjustment to the opening balance of each affected component of net worth for the period.

� Cumulative effect – when it is impracticable to determine the cumulative effects at the beginning of the current period of applying a new accounting policy to all prior periods, an authority is required to adjust the comparative information to apply the new accounting policy from the earliest date practicable.

Changes in Accounting Estimates D29 When preparing their financial statements, authorities will first of all decide their accounting

policies:

� in which period assets, liabilities, gains and losses are to be recognised

� what basis should be used to measure amounts recognised

� where in the various financial statements the amounts should be disclosed and how they should be presented and supported by notes.

Where the basis of measurement for the amount to be recognised is uncertain, then the authority will use an estimation technique.

D30 The use of reasonable estimation is an essential part of the preparation of the financial statements. It does not undermine their reliability. Many items in the financial statements cannot be measured precisely but can only be estimated because of the inherent uncertainties that apply to the provision of local government services, activities and trading organisations. Estimates involve judgements based on the latest available, reliable information. They are applied for example, in determining, the useful lives of property, plant and equipment, provisions, fair values of financial assets and liabilities and actuarial assumptions relating to defined benefit pension schemes.


D31 The commonly cited illustration of the difference between accounting policies, measurement bases and estimates relates to depreciation:

� the accounting policy in local government is that property, plant and equipment are depreciated by the systematic allocation of their depreciable amounts over their useful lives

� a measurement basis will then be chosen on which to base the systematic allocation – eg historical cost or fair value

� depreciation will then be calculated using estimates of useful life and residual value using a particular methodology (eg straight line).

D32 Accounting estimates need to be distinguished from accounting policies because the effect of a change in an estimate is reflected in the current Comprehensive Income and Expenditure Statement (and sometimes in those of future periods). In contrast, a change in accounting policy will generally require adjustments of previously reported amounts.

D33 An estimate may need to be changed if there is a change in the circumstances on which the estimate was based or the authority has new information or more experience relating to the estimation process.

D34 Paragraph 3.3.2.2 of the Code defines a change in accounting estimate as:

... an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not correction of errors.

D35 Paragraph 3.3.2.15 of the Code clarifies that a change in the measurement basis applied to a transaction or balance is not a change in an accounting estimate, but is a change in accounting policy. For example, if the Code specified a move from a measurement basis of historical cost to fair value for a class of assets, this would require a change in accounting policy. However, a change in the method of depreciation would be a change in accounting estimate (confirmed by paragraph 61 of IAS 16). IAS 8 (paragraph 35) notes that where it is difficult to distinguish between a change in accounting policy and a change in accounting estimate, then such a change should be treated as a change in accounting estimate.

D36 Paragraph 3.3.2.16 of the Code requires that (except to the extent discussed in the following paragraph) the effect of a change in accounting estimates should be recognised prospectively (ie from the date of change) in surplus or deficit in:

� the period of the change, if the change affects the period only, or

� the period of the change and future periods, if the change affects both.

D37 In some circumstances, changes in estimate may impact on assets and liabilities or a component item of net worth. In such circumstances the change is recognised in the carrying amount of the assets and liabilities or item of net worth in the period of change.

D38 Prospective application of recognising the effect of a change in an accounting estimate means that a change is applied to transactions, other events and conditions from the date of change of estimate. A change in accounting estimate may in some cases only impact on the


current period’s surplus or deficit or may impact on the surplus or deficit of both the current and future periods. For example, a change in estimate of a provision may only impact on the current period whereas a change in the useful life of property, plant and equipment will impact on the surplus or deficit of future periods. In both cases the effect of the change of the estimate relating to the current period is recognised as income or expense in the current period. The effect, if any, in future periods is recognised as income or expense in future periods (IAS 8, paragraph 38).

ErrorsD39 Errors may occur in the recognition, measurement, presentation or disclosure of elements

of the financial statements. IAS 8 states that financial statements do not comply with IFRS if they contain material errors. Nor do they comply if they contain immaterial errors that have been made intentionally to achieve a particular presentation of an authority’s financial position, financial performance or cash flows (IAS 8, paragraph 41). Current period errors have the potential to be discovered in the current period and are corrected before the financial statements are authorised for issue.

D40 Prior period errors are defined in paragraph 3.3.2.5 of the Code as:

... omissions from, and misstatements in, the entity’s [authority’s] financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:

a) was available when financial statements for those periods were authorised for issue, and

b) could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.

D41 Paragraph 3.3.2.18 of the Code requires that material prior period errors must be corrected by retrospective restatement, in the first financial statements issued following the discovery of the error, except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the error. Retrospective restatement is defined in paragraph 3.3.2.8 of the Code as ‘correcting the recognition, measurement and disclosure of amounts of elements of financial statements as if a prior period error had never occurred’. Such restatement is achieved by:

� restating the comparative amounts for prior period(s) presented in which the error occurred, or

� if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and net worth for the earliest prior period presented.

D42 As with retrospective application of an accounting policy, it should be noted that when an authority makes a retrospective restatement, or when it reclassifies items, paragraph 3.4.2.17 of the Code requires that it presents an additional Balance Sheet at the beginning of the preceding period.

D43 The Code requires retrospective restatement for material prior period errors. The definition of materiality provided by the Code is reproduced in these Guidance Notes in paragraph D6 of this module. Generally, when a prior period error impacts on any component element


of the financial statement being presented, the authority will need to evaluate whether or not the error is material (ie would the misstatement or omission influence the decisions or assessments of users taken on the basis of the financial statements?). Materiality should not just be assessed on the impact on the surplus or deficit for the year or the impact on net worth but on the financial statements as a whole. It is worthwhile noting here that, as described above (paragraph D41), the Code requires that material prior period errors be corrected by restating prior period amounts.

D44 As noted in the definition of a prior period error (see paragraph D40), determining whether or not there has been an error in a prior period requires that reliable information was available or could have reasonably been obtained at the time the error was made. In most situations reliable information is likely to have been available. For example, where errors involve an under-accrual of an item, there should be evidence from originating transactions to establish that reliable information was available. However, where there has been a considerable passage of time or where there are complex transactions, it will be more difficult to determine whether reliable information was available.

D45 A prior period error will require retrospective restatement except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effects of the error. The relevant definition of impracticable is provided in paragraph D24 of this module. The principles of this exception apply in a similar way as they would to full retrospective application of changes in accounting policy, ie the practicality of correcting the errors is impacted on significantly by the passage of time and IAS 8 does not permit the use of hindsight when correcting errors (see paragraphs D25 to D27 of this module and paragraphs 51 to 53 of IAS 8). IPSAS 3 provides useful exemplification for situations where the use of hindsight would not be permitted in correcting material errors. The following examples have been adapted to local government circumstances from the examples in IPSAS 3:

� If a local authority is required to correct a material prior period error in classifying a property of a local authority as an investment property (the building was previously classified as Property, Plant, and Equipment), it does not change the basis of classification for that period if local authority management decided later to use that building as an operational property of the authority.

� If a local authority had to correct a prior period error to a provision calculated under IAS 37 Provisions, Contingent Liabilities and Contingent Assets for cleansing a building which has decontamination costs relating to asbestos in its ceiling, it disregards information relating to the subsequent discovery (that became available after the financial statements for the prior period were authorised for issue) that the building was significantly devalued due to subsidence on the same site.

D46 It is important to note, however, that significant estimates might often be required when amending comparative information presented for prior periods, but this does not prevent correction or restatement of the comparative information (IAS 8, paragraph 53).

D47 As set out in paragraph D41 above, where it is impracticable to determine the period-specific effects of an error on comparative information for one or more periods presented, the authority is required to restate the opening balances of assets, liabilities and net worth for the earliest period for which retrospective restatement is practicable. This could, in the more


extreme cases, be the current period, if the period-specific effect cannot be determined for earlier periods (IAS 8, paragraphs 43 and 44).

D48 IAS 8 also cites another example of the limitations of retrospective restatement. Where it is impracticable to determine the cumulative effect of an error as at the beginning of the current accounting period presented (on all prior periods), an authority should adjust the comparative information to correct the error prospectively from the earliest practical date (IAS 8, paragraphs 45 and 47). It, therefore, disregards the portion of the cumulative restatement of assets, liabilities and net worth arising before that date.

D49 IAS 8 (paragraph 46) stipulates that the correction of a prior period error is excluded from the Comprehensive Income and Expenditure Statement for the period in which the error is discovered. However, if there is a correction to the extent that the amount attributable to a prior period cannot be determined, it is included in the current period Comprehensive Income and Expenditure Statement (because, for example, it might just as easily relate to the current period). This means that assets, liabilities and reserves for prior periods may be partially adjusted (as set out by IAS 8, paragraph 47), but will be fully adjusted at the end of the current period.

D50 The correction of errors must be distinguished from changes in accounting estimates. Accounting estimates are by their nature an approximation that may need to be revised as additional or better information becomes available. Such changes in accounting estimates represent the result of management’s best judgement under prevailing circumstances and information.

Disclosures

Changes in Accounting Policy

D51 Where a change in accounting policy is required by the Code, an authority should disclose the information that might specifically be required by the Code. For other voluntary changes in accounting policy made by an authority, disclosure is required of:

� the nature of the change in accounting policy

� the reasons why applying the new accounting policy provides reliable and more relevant information

� for the current period and each prior period presented, to the extent practicable, the amount of the adjustment for each financial statement line item affected

� the amount of the adjustment relating to periods before those presented, to the extent practicable, and

� if retrospective application is impracticable for a particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied.


ILLUSTRATION: CHANGE IN ACCOUNTING POLICY In 20RR/SS Zackencody County Council has commenced construction of Phase 2 of the town centre ring road. It considers that in order to present a true and fair view of the costs of its property, plant and equipment, it needs to enhance its accounting policies by capitalising borrowing costs incurred whilst the road is under construction. A review of past transactions suggests that there has been one other project involving assets with substantial construction periods where there would be a material misstatement of the asset balance if borrowing costs are not capitalised via a prior period adjustment. Previously, the council had expensed the borrowing costs as they were incurred. The following is an extract of the disclosures in the financial statements:

Property, Plant and Equipment (Extract – Financial Statements 31 March 20SS)

Borrowing Costs

For 20RR/SS the Council has changed its accounting policy for borrowing costs incurred where items of property, plant and equipment take a substantial period of time to get ready for their intended use. Previously borrowing costs had been charged to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement in the financial year in which they were incurred. The new approach is to capitalise borrowing costs for qualifying assets and is set out in the Council’s summary of significant accounting policies (see Note A on page BB).

The Council has enhanced the accounting policy because it believes that the capitalisation of borrowing costs better reflects the costs of property, plant and equipment and helps ensure that those benefitting from the use of the asset meet those costs.

In applying the new accounting policy, the Council has identified that the only other scheme where there would be a continuing material impact if borrowing costs had been capitalised during the construction period is Phase 1 of the town centre ring road project, completed at the start of 20PP/QQ. The 1 April 20QQ and 31 March 20RR Balance Sheets and 20QQ/RR comparative figures have thus been restated in the 20RR/SS Statement of Accounts to apply the new policy to the Phase 1 scheme.

The effects of the restatement are as follows:

� At 1 April 20QQ, the carrying amount of the Infrastructure category of Property, Plant and Equipment is restated upwards by £2.7m (£2.9m of capitalised borrowing costs, less £0.2m depreciation). Capitalisation of the borrowing costs results in an increase in the General Fund Balance of £2.9m. The additional depreciation charge is matched by a credit to the Capital Adjustment Account.

The fully restated 1 April 20QQ Balance Sheet is provided on page CC. The adjustments that have been made to that Balance Sheet over the version published in the 20QQ/RR Statement of Accounts are as follows:


Effect on Opening Balance Sheet 1 April 20QQ

Opening Balances as at

1 April 20QQ

£000

Restatement

£000

Correction required to opening balances

as at 1 April 20QQ

£000

Property, Plant and Equipment 522,900 525,600 2,700

Long-term Assets 534,700 537,400 2,700

Total Net Assets 325,350 328,050 2,700

Usable Reserves 35,150 38,050 2,900

Unusable Reserves 290,200 290,000 (200)

Net Worth/Total Reserves 325,350 328,050 2,700

� During 20QQ/RR, the higher carrying amount of infrastructure assets results in an increased depreciation charge of £200,000. The fully restated 20QQ/RR comparative figures for the Comprehensive Income and Expenditure Statement and the Movement in Reserves Statement are on pages YY and ZZ respectively. The adjustments that have been made to the statements over the versions published in the 20QQ/RR Statement of Accounts are as follows:

Effect on Comprehensive Income and Expenditure Statement 20QQ/RR

As Previously Stated

20QQ/RR

£000

As Restated 20QQ/RR

£000

Correction 20QQ/RR

£000

Highways and Transport Services 14,450 14,650 200

Cost of Services 67,780 67,980 200

(Surplus) or Deficit on the Provision of Services

4,610 4,810 200

Total Comprehensive Income and Expenditure

(35,930) (35,730) 200


Movement in Reserves Statement – Usable Reserves 20QQ/RR


20QQ/RR

£000

As Restated 20QQ/RR

£000

Correction 20QQ/RR

£000

Balance as at the end of the previous reporting period – 31 March 20QQ

35,150 38,050 2,900

Surplus or Deficit on the Provision of Services

(4,610) (4,810) (200)

Adjustments between accounting basis and funding basis under regulations

1,025 1,225 200

Transfers to/from Earmarked Reserves 315 315 –

Increase/(decrease) in the year (3,270) (3,270) –

Balance at the end of the current reporting period

31,880 34,780 2,900

Movement in Reserves Statement – Unusable Reserves 20QQ/RR


31 March 20RR

£000

As Restated 31 March 20RR

£000

Correction 20RR

£000

Balance as at the end of the previous reporting period – 31 March 20QQ

290,200 290,000 200

Surplus or Deficit on the Provision of Services

– – –

Other Comprehensive Income and Expenditure 40,450 40,450 0

Adjustments between the accounting basis and the funding basis under regulations

(1,025) (1,225) (200)

Increase/(decrease) in the year 39,425 39,225 (200)

Balance at the end of the current reporting period 31 March 20RR

329,625 329,225 (400)

� The resulting restated Balance Sheet for 31 March 20RR is provided on page XX. The adjustments that have been made to that Balance Sheet over the version published in the 20QQ/RR Statement of Accounts are as follows:


Effect on Balance Sheet 31 March 20RR

As Previously Stated 31 March 20RR

£000


£000

Correction 20RR

£000

Property, Plant and Equipment 581,125 583,625 2,500

Long-term Assets 592,575 595,075 2,500

Total Net Assets 361,505 364,005 2,500


Unusable Reserves 329,625 329,225 (400)

Net worth 361,505 364,005 2,500

� The effect of the change in accounting policy in 20RR/SS has been that £1.3m of borrowing costs incurred during the construction of the Phase 2 project have been capitalised as Assets under Construction rather than charged to the Comprehensive Income and Expenditure Statement. The continuing effect of the restatements in relation to the Phase 1 project is that depreciation charged to Highways and Transport Services is £200,000 more than it would have been.

The recognition of an additional £4.2m of borrowing costs (£2.9m for Phase 1 and £1.3m for Phase 2) as capital expenditure during 20RR/SS increased the Authority’s Capital Financing Requirement. The increase has been financed by the application of £4.2m of capital receipts (see the Note AA on page BB, ie the Authority’s note on Capital Receipts Reserve).

D52 Paragraph 3.3.4.2 of the Code does not require that the disclosures in the above example are provided in subsequent years. It is sufficient to carry forward the adjusted balances into the new year.

Future Accounting Standards – Disclosures

D53 Where a new standard has been published but has not yet been adopted by the Code, local authorities are required to disclose information relating to the impact of the accounting change. Paragraph 3.3.4.3 of the Code sets out a time limitation for this requirement, ie it applies to IFRS that have not been applied in the Code and that come into effect on or before the 1 January for the financial year in question. For the 2014/15 financial year, the applicable date will thus be 1 January 2015. In making the disclosures required, practitioners are recommended to disclose:

� The title of the new standard.

� The nature of the change in accounting policy or policies.

� The date by which the standard or interpretation is likely to apply to local authorities.

� A discussion of the impact that the introduction of the new standards is likely to have on the financial statements estimated on a reasonable basis. If an estimate cannot be made


on a reasonable basis because, for example, the base data required to estimate the impact of the new standard is not available, then the financial statements should clearly explain that this is the case (IAS 8, paragraphs 30 and 31).

Changes in Accounting Estimates – Disclosures

D54 For changes in accounting estimates, an authority should disclose the nature and the amount of the change that affects the current period or that it is expected to have in future periods. It should be noted that IAS 8 does permit an exception where it is impracticable to estimate the effect of future periods. Where the effect on future periods is not disclosed because it is impracticable, that fact should be disclosed.

ILLUSTRATION: CHANGES IN ACCOUNTING ESTIMATESZackencody County Council has taken the decision to move to depreciating its larger plant and equipment on a reducing balance basis from a straight-line basis.

Property, Plant and Equipment (Extract – Financial Statements 31 March 20SS)

A review of the depreciation schedules of the larger plant and equipment of the Council (eg winter maintenance trucks and other large vehicles) has resulted in the Council concluding that the basis on which these assets are depreciated would better reflect the resources consumed if calculations were on a reducing balance basis rather than a straight-line basis. The revision results in an increase in depreciation for 20RR/SS of £2.5m and an estimated increase for 20SS/TT of £2.3m.

Prior Period ErrorsD55 For prior period errors, the following information should be disclosed by a local authority:

� the nature of the prior period error

� for each prior period presented, to the extent practicable, the amount of the correction for each financial statement line item affected

� the amount of the correction at the beginning of the earliest prior period presented.

Subsequent financial years need not repeat these disclosures.

D56 It should be noted that IAS 8 also includes the requirement to disclose, if retrospective restatement is impracticable for a particular prior period, the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected.

ILLUSTRATION: DISCLOSURE OF THE IMPACT OF AN ERRORZackencody County Council discovered an error in the way in which its accruals operated in the preceding financial year 20QQ/RR. The error meant that certain year-end accruals were processed twice. The following is an extract from the disclosures in the financial statements setting out the nature of the error and the amount of correction required:

Error on Reports of the Cost of Services for the Financial Year 20QQ/RR (Extract – Financial Statements 31 March 20SS)

The Council discovered that its accruals systems for year-end creditors for the financial year 20QQ/RR processed certain accruals twice in the ledger. This meant that service expenditure for services


was overstated in the financial statements by £5.2m. The Council has since reviewed its final accounts systems and processes and has made appropriate changes and introduced additional internal controls to ensure that such events are unlikely to recur. However, this has meant for a number of services of the authority that the service analysis in the Comprehensive Income and Expenditure Statement has been overstated in 20QQ/RR by varying amounts totalling to £5.2m. This has also meant that the General Fund Balance was understated by £5.2m for the financial year 20QQ/RR.

In order to correct this error, the Council has restated the prior year information for 20QQ/RR for the £5.2m in each of the following reported service lines in the Comprehensive Income and Expenditure Statement. The following are the relevant extracted lines from the Comprehensive Income and Expenditure Statement. The Comprehensive Income and Expenditure Statement with appropriate restatement for 20QQ/RR can be found on page RR of these financial statements.

Effect on Comprehensive Income and Expenditure Statement 20QQ/RR

Originally Stated 20QQ/RR

Net Expenditure £000s

Restated 20QQ/RR

Net Expenditure £000s

Amount of Restatement

£000s

Central Services to the Public 1,205 1,005 200

Cultural and Related Services 654 (647 7

Environmental and Regulatory Services 1,262 (1,248) 14

Planning Services 338 (334) 4

Education and Children’s Services 63,430 60,410 3,020

Highways and Transport Services 16,058 16,013 45

Housing Services (721) (721) 0

Adult Social Care 10,893 8,983 1,910

Corporate and Democratic Core 382 382 0

Non Distributed Costs 79 79 0

Cost of Services 93,580 88,380 5,200

(Surplus) or Deficit on the Provision of Services

10,750 5,550 5,200

Total Comprehensive Income and Expenditure (21,500) (26,700) 5,200

The CIPFA Code of Practice on Local Authority Accounting in the United Kingdom requires that an authority present a Balance Sheet at the beginning of the preceding period when an authority makes a retrospective restatement. However, in this case the prior period error did not impact on the opening Balance Sheet for 20QQ/RR. The error took place at year-end (20QQ/RR) and therefore impacted on the reported General Fund Balance, which has increased by the £5.2m. The short-term creditors balance was also overstated by the same amount. The following table demonstrates the effects on the following line items in the Balance Sheet for the financial year 20QQ/RR. The restated (for the relevant line items) prior period Balance Sheet is provided with the current year information on page QQ of the financial statements.


Effect on line items in the Balance Sheet 31 March 20RR

20QQ/RR As Originally Stated

£000

20QQ/RR As Restated

£000

Restatement

£000

Short-term Creditors (25,750) (20,550) 5,200

Current Liabilities (45,330) 40,030 5,200

Net Assets 404,500 409,700 5,200


Total Reserves 404,500 409,700 5,200

The following restatement was also required for the Movement in Reserves Statement for Usable Reserves. The restated (for the relevant line items) prior period Movement in Reserves Statement is provided with the current year information on page TT of the financial statements.

Movement in Reserves Statement – Usable Reserves 31 March 20RR

As Previously Stated 31 March

20RR

£000


£000

Restatement

20RR

£000

Balance at the end of the previous reporting period 31 March 20QQ

40,435 40,435 0

Surplus or (Deficit) on the Provision of Services

(10,750) (5,550) 5,200

Adjustments between accounting basis and funding basis under regulations

1,202 1,202 0

Transfers to/from Earmarked Reserves 413 413 0

Increase or (Decrease) in the year (9,135) (3,935) 5,200

Balance at the end of the current reporting period 31 March 20RR

31,300 36,500 5,200


E MOVEMENT IN RESERVES STATEMENT

Introduction E1 The Movement in Reserves Statement (MiRS) is a summary of the changes that have taken

place in the bottom half of the Balance Sheet over the financial year. It does this by analysing:

� the increase or decrease in the net worth of the authority as a result of incurring expenses and generating income

� the increase or decrease in the net worth of the authority as a result of movements in the fair value of its assets

� movements between reserves to increase or reduce the resources available to the authority according to statutory provisions.

E2 Paragraph 3.4.2.38 of the Code requires this range of objectives to be explained in the Statement of Accounts by the inclusion of a description of the purpose of the MiRS either in the Explanatory Foreword or on the face of the MiRS itself. The Code provides the following example description, which will need to be tailored for local circumstances, particularly to ensure that it is appropriately worded for the authority’s expected readership:

This statement shows the movement in the year on the different reserves held by the authority, analysed into ‘usable reserves’ (ie those that can be applied to fund expenditure or reduce local taxation) and other reserves. The Surplus or (Deficit) on the Provision of Services line shows the true economic cost of providing the authority’s services, more details of which are shown in the Comprehensive Income and Expenditure Statement. This is different from the statutory amounts required to be charged to the General Fund Balance and the Housing Revenue Account for council tax setting and dwellings rent setting purposes. The Net Increase/Decrease before Transfers to Earmarked Reserves line shows the statutory General Fund Balance and Housing Revenue Account Balance before any discretionary transfers to or from earmarked reserves undertaken by the council.


Contents of the Movement in Reserves StatementE3 The movements and sub-headings (shown in italics) to be included on the face of the MiRS

are set out in paragraph 3.4.2.39 of the Code.

a) Balance as at the end of the previous reporting period

This line should be taken from the figures for 31 March of the preceding year in the Balance Sheet. It should total to the net worth of the authority at that date (ie all items in the bottom half of the Balance Sheet should be consolidated).

b) Surplus or deficit on the provision of services (accounting basis)

Figures will generally only appear in this line for the General Fund and the Housing Revenue Account. They will be taken directly from the Comprehensive Income and Expenditure Statement. For an authority with an HRA, the figures in the General Fund column will be derived by disaggregating the CIES amounts to exclude the figures presented in the HRA column.

c) Other comprehensive income and expenditure

Figures should only appear in this line for the Unusable Reserves, being unrealised revaluation gains and actuarial gains/losses on retirement benefits. They will be taken directly from the Comprehensive Income and Expenditure Statement (CIES). For an authority with an HRA the figures in the General Fund column will be derived by disaggregating the CIES amounts to exclude the figures presented in the HRA column.

Paragraph 3.4.2.40 of the Code requires an analysis of the amounts included in this item, either on the face of the statement or in a note. As there will probably not be sufficient room on the face of the statement without cluttering it up and because the information can be cross-referred to the section of the CIES, a note will almost certainly be preferable.

d) Total comprehensive income and expenditure

This line is the sum of b) and c). Presentation of the statement should make it clear that item a) is not incorporated into any of the subtotals but carried forward to be added to line j) to arrive at the figure for line k).

e) Adjustments between group accounts and authority accounts (group accounts only)

This line will feature the reversal of consolidation adjustments required to the authority-only figures in the preparation of lines a) to d) in the preparation of group accounts. It will be omitted from the single authority statement.

Paragraph 3.4.2.40 of the Code requires an analysis of the amounts included in this item, either on the face of the statement or in a note.

f) Net increase or decrease before transfers (group accounts only)

This line is the sum of d) and e). It will be omitted from the single authority statement.


g) Adjustments between accounting basis and funding basis under regulations

This line will consolidate all the adjustments needed to convert the Surplus or Deficit on the Provision of Services in the CIES to the movement on the General Fund Balance for the year as defined by statutory provisions.

This line will also be used to transfer amounts from the Capital Receipts Reserve and unapplied unconditional capital grants balances from the Capital Grant Unapplied Account to the Capital Adjustment Account when they have been applied.

Paragraph 3.4.2.40 of the Code requires an analysis of the amounts included in this item, either on the face of the statement or in a note. The further requirements of the Code for this analysis are discussed in paragraph E6 below.

h) Net increase or decrease before transfers to earmarked reserves (England and Wales) or other statutory reserves (Scotland)

This is the sum of d) and g) for the single authority statement, but of f) and g) for the statement in the group accounts.

i) Transfers to/from earmarked reserves (England and Wales) or other statutory reserves (Scotland)

Any earmarking of the General Fund Balance will be recorded here by English and Welsh authorities. Authorities in Scotland may use this line for postings to statutory funds.

j) Increase or decrease in year This is the sum of h) and i).

k) Balance as at the end of the current reporting period

This line is the sum of a) and j) and should reconcile to the figures for 31 March of the current year in the Balance Sheet. It should total to the net worth of the authority at that date (ie all items in the bottom half of the Balance Sheet should be consolidated).

E4 Paragraph 3.4.2.41 of the Code specifies the classification of reserves for the MiRS (with sub-totals in italics).

a) General Fund Balance (gross of any earmarking in Scotland)

As the HRA Balance is required to be analysed separately, the movements disclosed for this heading will require the disaggregation of Comprehensive Income and Expenditure Statement figures to exclude HRA transactions.

b) Earmarked General Fund Reserves (England and Wales)

This heading is recommended by the Code but not made mandatory. Authorities in England and Wales are therefore able to keep the General Fund Balance intact and detail movements on earmarked reserves in the notes. Where earmarking is not done on the face of the MiRS, line i) (see paragraph E3) can be deleted.

c) Housing Revenue Account Balance (gross of any earmarking in Scotland)

–

d) Earmarked Housing Revenue Account Reserves (not Scotland) (recommended but not mandatory)

This heading is recommended by the Code but not made mandatory: authorities in England and Wales are therefore able to keep the HRA Balance intact and detail movements on earmarked reserves (such as the Housing Repairs Account) in the notes.

e) Major Repairs Reserve (England and Wales)

This heading will allow the MRR to be posted to the Capital Adjustment Account when it is applied.


f) Revenue statutory funds (Scotland) – eg the Insurance Fund

This classification covers the circumstances under which authorities in Scotland are able to take resources outside of the scope of the General Fund, eg the Insurance Fund.

g) Capital Receipts Reserve and (in Scotland) capital statutory funds

Authorities in all territories will need a classification for the Capital Receipts Reserve. In addition, authorities in Scotland may need to account for other resources taken outside the scope of the General Fund to capital funds.

h) Capital Grants Unapplied Account

These amounts have been credited to the Comprehensive Income and Expenditure Statement but not yet applied to fund expenditure (in accordance with the requirements of section 2.3 of the Code; see Module 2, section C). Statutory adjustments against the General Fund and HRA balances result in them being posted to this usable capital reserve until the relevant expenditure is incurred.

i) Total usable reserves Items a) to h) aggregated.

j) Unusable reserves A single heading to cover:

Revaluation balances

� the Revaluation Reserve

� the Available for Sale Financial Instruments Reserve

Adjustment accounts

� Pensions Reserve

� Capital Adjustment Account

� Deferred Capital Receipts (England and Wales)

� Financial Instruments Adjustment Account

� Collection Fund Adjustment Account (England only)

� Unequal Pay Back Pay Account (England only)

� Accumulated Absences Account

� Employee Statutory Adjustment Account (Scotland).

Where movements take place between Unusable Reserves (eg from the Revaluation Reserve to the Capital Adjustment Account), these will have no net effect on the MiRS where the reserves are aggregated on its face. However, when further detail is provided in notes to the accounts, decisions may need to be made about how to cross-reference these transactions with the movements listed in paragraph E3.

k) Total reserves of the authority This is the sum of i) and j).

l) Authority’s share of the reserves of subsidiaries, associates and joint ventures

Required only for the group accounts.

m) Total reserves Required only for the group accounts. This will be the sum of j) and k).


Adjustments between Accounting Basis and Funding BasisE5 The crucial line in the MiRS is the one containing adjustments between the accounting basis

and the funding basis under regulations. As local authorities are tax-raising bodies, they are subject to specific rules as to how tax rates are to be set in relation to the income and expenses of the authority. In significant instances, these rules will differ substantially from proper accounting practices, in particular:

� Where expenditure is incurred in advance of cash flowing out of the authority, the need to raise tax is sometimes deferred until the cash flows actually take place. The most substantial example is the treatment of post-retirement benefits. Proper accounting practice accrues the cost of these benefits as employees earn them through years of service. However, tax is raised to cover employers’ contributions paid to pension funds and any direct payments made to pensioners.

� Where a change in proper accounting practices might have a disruptive effect on tax levels, statutory provisions can preserve the previous accounting treatment for existing transactions and sometimes extend it to future transactions. For example, the implementation of the Code’s provisions on financial instruments was accompanied by regulations and statutory guidance that required the impact on tax to be determined by the contractual amounts payable rather than the expenses determined for each financial year by the Code.

� Authorities are sometimes permitted to recognise the wider public benefit of financial assistance towards capital investment incurred by other entities, whereas proper practices would require the assistance to be expensed immediately if the authority could not recognise an asset on its own Balance Sheet. For example, authorities in England and Wales are permitted statutorily to treat all such financial assistance as capital expenditure (Revenue Expenditure funded from Capital under Statute).

E6 No entries are permitted in the accounting basis and funding basis line that are not supported by statutory provisions or statutory guidance. Paragraph 3.4.2.40 of the Code sets out the transactions that must be included in an analysis of the line in the notes to the accounts. However, this is not an exhaustive list of all the transactions that might qualify to be part of the reconciliation. The Code’s listing is as follows.

Depreciation, impairment and revaluation losses (charged to Surplus or Deficit on the Provision of Services) of non-current assets

As all territories of the UK operate separate arrangements for revenue and capital finance, debits and credits made against the Surplus or Deficit on the Provision of Services in relation to non-current assets are generally reversed out so that they have no impact on the General Fund Balance.

The matching entry for all these reversals will be the Capital Adjustment Account.

The Code states that reversals should exclude HRA depreciation in England. It is formally the position that depreciation is a bottom-line charge against the HRA Balance.

However, please see the accounting entries in paragraphs D49 to D52 of Module 4 for depreciation in the HRA in England and the relationship with the Major Repairs Reserve.


Amortisation of intangible assets

Amortisations of intangible assets charged to the Surplus or Deficit on the Provision of Services are not proper charges to the General Fund and therefore should be reversed out to the Capital Adjustment Account.

Movements in the fair value of investment properties

Increases or decreases in the value of investment properties are not proper charges to the General Fund – paragraph 4.4.3.3 of the Code requires that the debit or credit to the Surplus or Deficit on the Provision of Services be reversed out of the General Fund to the Capital Adjustment Account.

Capital grants, contributions and income in relation to donated assets credited to the Comprehensive Income and Expenditure Statement

As with depreciation, no amount of grant to be applied to the financing of capital investment should be left as a credit against the General Fund Balance. Grants will be taken into account in capital financing decisions, and credits to the Comprehensive Income and Expenditure Statement do not then represent the recognition of usable revenue resources. A reversal of credits to the Capital Adjustment Account is required, unless the grant has yet to be applied to expenditure. In the latter case the reversal is posted to the Capital Grants Unapplied Account.

This line should also be used for the reversal of any other contributions receivable towards capital investment that have been credited to the Comprehensive Income and Expenditure Statement.

However, capital grants passed on to other parties is revenue expenditure for authorities in Scotland (eg elements of general capital grant) and should not therefore be reversed.

Costs of disposal funded from capital receipts

In England and Wales, where disposal costs are to be met out of capital receipts, technically, the statutory status of the sale proceeds needs to be recognised as capital receipts before they can be posted back to the General Fund Balance to finance the disposal costs. A credit from the Capital Receipts Reserve will also then be made to the General Fund Balance. In Scotland, disposal costs may be met from the disposal income before the net balance is recognised as a capital receipt.

Revenue expenditure funded from capital under statute

See section J of Module 4 for further detail about the accounting treatment of revenue expenditure that can be treated as capital under statutory provisions or statutory guidance.

The underlying revenue nature of the expenditure means that it will be debited to the Comprehensive Income and Expenditure Statement when it is incurred. Where an authority applies the statutory provisions to treat the expenditure as capital, the debit against the General Fund Balance is reversed and posted to the Capital Adjustment Account.

In Scotland, when revenue expenditure is funded from capital grant (eg general capital grant), the grant income is credited to cost of services to match the spend which is therefore not reversed here.


Net gain or loss on sale or derecognition of non-current assets and non-current assets held for sale

See section E of Module 4 for further detail about the accounting treatment of gains and losses on the disposal of non-current assets.

The restrictions on applying capital receipts to new capital investment mean that the proceeds arising from non-current asset disposals cannot have an impact on the General Fund Balance. Sale proceeds are posted to the Capital Receipts Reserve and the carrying amount of the asset that was debited as part of the gain/loss is posted to the Capital Adjustment Account.

It is recommended that the elements of the net gain and loss are separately identified in this analysis. This will provide a clear trail from the Comprehensive Income and Expenditure Statement through the Movement in Reserves Statement to the Capital Adjustment Account and the Capital Receipts Reserve that otherwise might be obscured. For instance, if an authority breaks even on its disposals, there will be no need for a net adjustment to the General Fund Balance, but substantial postings might be made to the Capital Adjustment Account and the Capital Receipts Reserve. As a general rule, it will provide transparency if each line in the analysis matches across to a particular reserve.

In England and Wales, where the sale proceeds are not payable on disposal then the income accrued in the gain/loss on disposal should be posted to a Deferred Capital Receipts balance (an unusable reserve that will be transferred to the Capital Receipts Reserve when cash is received). This does not apply in Scotland. Where the sale proceeds are not payable on disposal there is no change in the practice of crediting the sale proceeds to the Capital Receipts Reserve.

Entries will also be needed for losses on the scrapping of non-current assets and gains and losses arising on the disposal of current assets of property, plant and equipment that had been reclassified as Assets Held for Sale but would otherwise have been classified as non-current assets.

Amount by which finance costs calculated in accordance with the Code are different from the amount of finance costs calculated in accordance with statutory requirements

For most financial instruments, the General Fund Balance will reflect the interest expenses and income, impairment losses and gains/losses arising on derecognition in accordance with the debits and credits made to the Comprehensive Income and Expenditure Statement per chapter seven of the Code. However, there are specific statutory provisions applicable to varying degrees in England, Wales and Scotland that allow the effects of soft loans and stepped interest loans to be adjusted to the contractual amounts payable for the year and for premiums and discounts arising on the early redemption of debt to be spread over a number of financial years. Specific provisions also apply to impairment losses attributable to investments in Icelandic banks.

Guidance on applicable statutory provisions is provided in Module 7.

This line will contain the reconciling entry to convert the accounting impact on the General Fund Balance into that required or permitted by statute. The entry will be matched by a debit or credit to the Financial Instruments Adjustment Account.


Amount by which pension costs calculated in accordance with the Code (ie in accordance with IAS 19) are different from the contributions due under the pension scheme regulations

Additional guidance on the Code’s requirements for post-retirement benefits is provided in section D of Module 6.

This line is needed to reverse out all the debits and credits made to the Comprehensive Income and Expenditure Statement in relation to defined benefit pension schemes, comprising:

� current service cost

� past service cost

� settlements

� net interest on the net defined benefit liability/(asset)

� remeasurements of the net defined benefit liability/(asset) – in respect of long-term employee benefits per section 6.2 of the Code (other than post-employment benefits).

Note that these remeasurements are recognised in accordance with the requirements of section 6.2 of the Code as long-term employee benefits. These costs though measured in accordance with the principles of section 6.4 of the Code are not post-employment benefits and are therefore presented in the Surplus or Deficit on the Provision of Services.

These debits and credits are replaced by a debit for the employer’s contributions payable to pensions funds for the year and any amounts payable directly to pensioners by the authority.

The matching entry to the reconciling transaction is posted to the Pensions Reserve.

Amount by which council tax income, non-domestic rate income and residual community charge adjustment included in the Comprehensive Income and Expenditure Statement is different from the amount taken to the General Fund in accordance with regulation (England only)

For authorities in England, there are strict rules on the amount of cash that can be paid out of the Collection Fund to billing authorities and preceptors in any financial year. However, the Code requires council tax and non-domestic rate proceeds to be accounted for in the Comprehensive Income and Expenditure Statement by accruing fully for the amounts collectable at the end of each financial year.

Further details of the process can be found in section H of Module 2.

This line reflects the adjustment of the credit based on full accruals to the credit to the General Fund Balance permitted by statutory provisions. The balancing double entry is a debit or credit to the Collection Fund Adjustment Account.

Amounts debited or credited to the Business Rate Supplement Revenue Account

This line will comprise the debits and credits to and from the General Fund to the Business Rate Supplement Revenue Account in accordance with statutory requirements (for detailed guidance on the accounting treatment of Business Rate Supplements, see Module 2, section B of these Guidance Notes).

Statutory provision for repayment of debt

This line will comprise the debit for Minimum Revenue Provision (England, Northern Ireland and Wales) or loans fund principal plus any finance lease/PFI repayments (Scotland) for the financial year, as determined under the relevant statutory provisions.

The matching entry will be a credit to the Capital Adjustment Account.


Capital expenditure charged to the General Fund Balance

This line is used where an authority decides to make a direct charge against the General Fund Balance to finance capital expenditure.

The matching entry will be a credit to the Capital Adjustment Account.

Transfers in respect of Community Infrastructure Levy (CIL) receipts

Where CIL charges have been used to fund capital expenditure, the CIL recognised in revenue will be reversed from the General Fund to the Capital Adjustment Account when it has been applied to expenditure. Where the charges have yet to be applied to expenditure, the reversal is posted to the Capital Grants Unapplied Account (for detailed guidance on CIL, see Module 2, section B of these Guidance Notes).

Transfer from Capital Receipts Reserve equal to the amount payable into the Housing Capital Receipts Pool (in England and Wales only)

Although the payment of a share of HRA capital receipts is required by the Code to be paid out of the Comprehensive Income and Expenditure Statement, it is by definition met from the capital receipts. Technically, the statutory status of the sale proceeds needs to be recognised as capital receipts before they can be posted back to the General Fund Balance to finance the pool payment.

This line records the credit back from the Capital Receipts Reserve to compensate the General Fund for the payment to the pool.

Any voluntary provision for repayment of debt

This line is intended to contain any provision over and above the Minimum Revenue Provision that authorities in England and Wales have determined to set aside for the year. Since a minimum charge is no longer prescribed in the relevant regulations, the concept of a voluntary provision in excess of the minimum is not applicable and this line will not need to be used.

Net transfer to or from earmarked reserves required by legislation

Although the Code does not specifically state that this line relates to statutory reserves for authorities in Scotland and Northern Ireland (as the use of such reserves is generally voluntary rather mandatory), its use to record transactions with these reserves is encouraged. A possible use of this line would be to earmark revenue grant income that has no conditions attaching to it but has yet to be applied and there are restrictions as to how the monies are to be applied.

In each of these instances, the amounts involved are likely to justify a separate line, especially as this will provide a clear trail from the Comprehensive Income and Expenditure Statement through the Movement in Reserves Statement to the relevant adjustment account.

Transfers between other reserves required by legislation

Potentially relevant transactions include:

� Postings between the General Fund Balance and the Unequal Pay Back Pay Account (see paragraphs B28 to B46 of Module 8). This entry reconciles the impact of equal pay settlements on the General Fund to eventual cash flows rather than to movements in the provisions made for such settlements (in accordance with relevant statutory provisions).

� Postings between the General Fund Balance and the Accumulated Absences Account (see paragraphs B74 to B82 of Module 6). This entry reconciles the impact of accruals for accumulating compensated absences (eg holiday pay) to the salaries actually payable in the financial year in accordance with relevant statutory provisions.

In each of these instances, the amounts involved are likely to justify a separate line, especially as this will provide a clear trail from the Comprehensive Income and Expenditure Statement through the Movement in Reserves Statement to the relevant adjustment account.


E7 In addition to these transfers taking place between the General Fund and HRA balances and other reserves, there will be one other transfer to recognise in the line reconciling the accounting basis to the funding basis. This is the posting of capital receipts from the Capital Receipts Reserve to the Capital Adjustment Account when they have been applied to new capital expenditure or set aside to reduce the net indebtedness of the authority.

Design of the Movement in Reserves StatementE8 In summary, paragraphs 3.4.2.41 and 3.4.2.39 of the Code set respectively the minimum

requirements for the categories of reserves to be shown on the face of the Movement in Reserves Statement and the types of movements to be summarised. These basic requirements are then supplemented by:

� Paragraph 3.4.2.42 of the Code, which requires supporting notes for each of the figures disclosed on the face of the statement, taking care to identify separately revenue and capital resources and balances held by schools under delegated arrangements. When separating revenue and capital resources, it is recommended that earmarked reserves (England and Wales) set up for capital projects, or used for both revenue and capital purposes (such as the renewal and repairs fund in Scotland), are treated as revenue balances, as the authority will retain the ability to use the amounts for revenue purposes.

� Paragraph 3.4.2.40 of the Code requires an analysis of lines (c), (e), (g) and (i) as listed in paragraph E3 either on the face of the statement or in notes, and specifies the minimum detail for line (g) – see paragraph E6.

E9 The Movement in Reserves Statement will be difficult to design. Even though the Code allows a substantial amount of information to be presented as notes to the accounts, the minimum requirements for the face of the statement are complex, particularly when the need for prior year comparatives is considered. The following recommendations are made:

� As one of the purposes of the statement is to bring together all the movement in the net worth of the authority and to demonstrate the total resources available to the authority at the year-end, the disclosure needs to be comprehensive. In particular, the table needs to sum to the net worth in the Balance Sheet.

� This will almost certainly require that the disclosure is made in a table with columns for each of the reserve categories (per paragraph E4) and rows for each of the movement types (per paragraph E3).

� In order to accommodate the comparative information, it will be most effective to sequence the information, so that the table opens with the opening balances at the start of the preceding year, then shows the prior year movements, the opening balances for the current year, the current year movements and the closing balances.

� The disclosures should be kept to the minimum required by the Code to be on the face of the statement (subject to this being sufficient to reconcile the aggregate of the closing balances to the net worth of the authority at 31 March). All other information should be relegated to the notes.

E10 The top half of the Movement in Reserves Statement is a summary of the Comprehensive Income and Expenditure Statement, so that the latter statement and its supplementary notes


will satisfy the requirement for fuller disclosure in relation to these figures. The following notes are then likely to be required to supplement the statement:

� a detailed analysis of the adjustments between Accounting Basis and Funding Basis under regulations

� an analysis of the postings to earmarked reserves (identifying schools balances where relevant) (England and Wales) or other statutory reserves (Scotland)

� where group accounts are being prepared, the adjustments made between the group accounts and the authority accounts.

F COMPREHENSIVE INCOME AND EXPENDITURE STATEMENT

Introduction F1 The Comprehensive Income and Expenditure Statement (CIES) consolidates all the gains

and losses experienced by an authority during the financial year. As authorities do not have any equity in their Balance Sheets, these gains and losses should reconcile to the overall movement in net worth.

F2 The CIES has two sections:

� Surplus or Deficit on the Provision of Services – the increase or decrease in the net worth of the authority as a result of incurring expenses and generating income.

� Other Comprehensive Income and Expenditure – shows any changes in net worth which have not been reflected in the Surplus or Deficit on the Provision of Services. Examples include the increase or decrease in the net worth of the authority as a result of movements in the fair value of its assets and actuarial gains or losses on pension assets and liabilities.

F3 Paragraph 3.4.2.43 of the Code requires that these purposes are explained in the Statement of Accounts by the inclusion of a description in either the explanatory foreword or on the face of the CIES itself. The Code provides the following example description, which will need to be tailored for local circumstances, particularly to ensure that it is appropriately worded for the authority’s expected readership:

This statement shows the accounting cost in the year of providing services in accordance with generally accepted accounting practices, rather than the amount to be funded from taxation. Authorities raise taxation to cover expenditure in accordance with regulations; this may be different from the accounting cost. The taxation position is shown in the Movement in Reserves Statement.

Contents of the Comprehensive Income and Expenditure StatementF4 The movements and sub-headings (shown in italics) to be included on the face of the CIES are

set out in paragraph 3.4.2.44 of the Code – see the following table.


a) Gross expenditure, gross income and net expenditure of continuing operations, analysed by service. Authorities shall present the service analysis on the basis of the Service Reporting Code of Practice

This line is effectively a sub-heading, and will be preceded on the face of the CIES by lines for each of the authority’s services. This sub-section of the CIES has three main characteristics:

� figures must be presented gross, separating out income and expenditure for each service

� the analysis must exclude income and expenditure for any discontinued operations (see item d) below)

� the service analysis is to be based on the Service Reporting Code of Practice, with two substantial consequences:

– the service lines must be those applicable to the authority as set out in the version of SeRCOP for relevant territory – more detail might be provided at division of service level, but this must be clearly capable of being aggregated up to service level

– the concept of total cost is to be applied, incorporating depreciation and certain other charges for the use of non-current assets, current service costs for post-employment benefits, and full absorption costing of support services and overheads (with the exception of Corporate and Democratic Core and Non Distributed Costs).

b) Other operating expenditure (comprising precepts (paid to non-principal authorities in England and all authorities in Wales) and levies; payments to the Housing Capital Receipts Pool; and gains or losses on the disposal of non-current assets)

This line contains corporate items of income and expenditure that cannot reasonably be allocated or apportioned to services:

� precepts – this item will apply to authorities that pay precepts to the parish or community councils within their district (precepts paid to principal authorities will be met out of the Collection Fund)

� levies – all levies payable by an authority will be included in this item

� payments to the Housing Capital Receipts Pool – where a housing authority in England or Wales has to pay a proportion of HRA capital receipts into the Government pool, the Code requires the payment to be charged as an expense to this line of the CIES

� gains/losses on the disposal of non-current assets – guidance on the calculation of gains and losses on disposal is contained in section E of Module 4.

Although not cited specifically by the Code, other items of income and expenditure will qualify for inclusion in this line where they meet the Code’s definition of income or expenditure but do not fall within the scope of one of the other lines in the CIES. This is confirmed by paragraph 3.4.2.48 of the Code, which says that income and expenditure must be charged to Surplus or Deficit on the Provision of Services unless the Code requires or permits otherwise.

Examples of other items not cited by the Code include:

� gains/losses arising on the disposal of intangible assets, such as the sale of software or the release of covenants

� gains/losses arising on agency work where the activity cannot be accommodated by particular services within the Service Expenditure Analysis.



c) Financing and investment income and expenditure (comprising interest payable and similar charges; net interest on the net defined benefit liability (asset); remeasurements of the net defined benefit liability (asset) for long-term employee benefits recognised in accordance with section 6.2 [of the Code]; interest income; income, expenditure, and changes in the fair values of investment properties; the surplus or deficit of trading operations which are not allocated back to services; and other investment income)

This line contains corporate items of income and expenditure arising from an authority’s involvement in financial instruments and similar transactions involving interest or the unwinding of discounts:

� Interest payable and similar charges – interest payable will normally comprise the contractual amount due for the year, but where the amortised cost method is used (see paragraphs B2 to B6 of Module 7), the latter figure will be debited to the CIES and adjusted for in the MiRS; this item will also contain the interest element of finance lease rentals payable and PFI unitary payments, premiums payable on the early redemption of debt and impairment losses relating to financial instruments.

� Net interest on the net defined benefit liability (asset) – the change during the period in the net defined benefit liability (asset) that arises from the passage of time (see paragraph D22 of Module 6 for details).

� Remeasurements of the net defined benefit liability/(asset) – (in respect of long-term employee benefits per section 6.2 of the Code (other than post-employment benefits)) – these remeasurements are estimated in accordance with the requirements of section 6.2 of the Code, ie long-term employee benefits, which in turn requires estimation in accordance with the requirements of section 6.4 post-employment benefits (see paragraphs B68 and D29 of Module 6). However, these are presented in the Surplus and Deficit on the Provision of Services and not the remeasurement line in Other Comprehensive Income.

� Interest income – interest receivable will normally comprise the contractual amount due for the year, but where the amortised cost method is used (see paragraph B2 of Module 7), the latter figure will be credited to the CIES and adjusted for in the MiRS; this item will also contain the interest element of finance lease rentals receivable, and discounts receivable on the early redemption of debt.

� Income, expenditure and changes in the fair value of investment properties – this item will comprise upward and downward movements in the value of properties, together with any gains and losses arising on disposal and rentals receivable and expenses incurred in relation to properties; where there are material amounts of both income and expenditure, these should be presented separately and not netted off in any analysis.

� Gains and losses on trading accounts that cannot be accommodated by particular services within the Service Expenditure Analysis.

� Other investment income – the most common item under this heading will be dividends receivable.



d) Surplus or deficit on discontinued operations

The CIES requires a complete separation of the surplus or deficit incurred on any material operations that have been discontinued in the year. See paragraph N34 of Module 4 for further detail on how such operations should be identified.

e) Taxation and non-specific grant income and expenditure (comprising council tax income, NDR distribution, non-domestic rates income and expenditure, unringfenced government grants, and all capital grants and contributions)

This item consolidates all the grants and contributions receivable that cannot be identified to particular service expenditure (which would be credited to the gross income of the relevant service line).

However, all capital grants and contributions are credited to this line, even where they are service-specific (except in Scotland, where capital grant passed on to other parties is credited to the service to match the spend).


f) Surplus or deficit on the provision of services

The sum of items a) to e).

g) Associates and joint ventures accounted for on an equity basis (group accounts only)

This line will feature the authority’s share of the results of its associates and joint ventures for group accounts purposes. It will be omitted from the single entity financial statements.

h) Tax expenses (group accounts only; taxation of group entities and reporting authority’s share of taxation of associates and joint ventures shall be shown on separate lines)

This line will feature the corporation tax payable by its group members. It will be omitted from the single authority statement.

i) Group surplus or deficit (group accounts only)

The sum of items f) to h).

j) Surplus or deficit on revaluation of non-current assets

This item will comprise revaluation gains and revaluation losses (except those charged to the Surplus or Deficit on the Provision of Services).

The item will not provide a comprehensive figure for the surplus or deficit where downward movements take place in excess of accumulated revaluation gains for the relevant assets.

Neither will the amount reconcile to the movement on the Revaluation Reserve, which will feature debits when assets are depreciated and disposed of that are posted to the Capital Adjustment Account and are not accounted for as revaluation losses.

k) Impairment losses on non-current assets charged to the revaluation reserve

This item will comprise impairment losses (except those charged to the Surplus or Deficit on the Provision of Services).


l) Surplus or deficit on revaluation of available-for-sale financial assets

This item will generally reconcile to the movement for the year on the Available for Sale Financial Instruments Reserve, except in instances where impairment losses arise when there are accumulated revaluation gains or losses for the instrument. These will have been posted to this item in the years that they were recognised but are required to be written out to the Financing and Investment Income and Expenditure line in the CIES when an impairment takes place. A reversing debit or credit will be needed in this line to avoid double-counting the write-out posted against item c).

See paragraph C21 of Module 7 for further explanation.

m) Remeasurements of the net defined benefit liability (asset)

This comprises:

� actuarial gains and losses

� return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset), and

� any change in the effect of the asset ceiling excluding amounts included in net interest on the net defined benefit.

The matching entry will be to the Pensions Reserve.

n) Share of other comprehensive income and expenditure of associates and joint ventures (group accounts only)

This line will feature the authority’s share of the Other Comprehensive Income and Expenditure results of its associates and joint ventures for group accounts purposes. It will be omitted from the single authority statement.

o) Other comprehensive income and expenditure

The sum of items j) to n).

p) Total comprehensive income and expenditure

For the authority accounts, the sum of items f) and o).

For group accounts, the sum of items i) and o).

This total should equal the movement in net worth in the Balance Sheet.

Design of the Comprehensive Income and Expenditure StatementF5 The design of the Comprehensive Income and Expenditure Statement should be relatively

straightforward, following the structure provided in paragraph 3.4.2.44 of the Code as analysed in the preceding table.

F6 The Code requires the following to be disclosed in notes to the accounts or on the face of the statement:

� An analysis of items b), c) and e) (paragraph 3.4.2.46 of the Code).

� Any items of income or expense that are material (paragraph 3.4.2.53 of the Code) – this is a wide-ranging provision that will require consideration of all the transactions of the authority over the year to determine whether there are any individual items or groups of items that should be separately disclosed. The Code gives the following examples, but the provisions could apply to any aspect of the authority’s activity:

– disposals of items of property, plant and equipment

– disposals of investments

– other reversals of provisions.


F7 Where reclassification adjustments are made to components of Other Comprehensive Income and Expenditure, paragraph 3.4.2.52 of the Code requires the adjustments to be disclosed (if they are material).

F8 Paragraph 3.4.2.47 of the Code prohibits the treatment of any items of income or expense as ‘extraordinary’. All items must therefore be accommodated within one of the specified lines of the Surplus or Deficit on the Provision of Services or the Other Comprehensive Income and Expenditure.

Presentation of Items in Other Comprehensive Income and ExpenditureF9 Paragraph 3.4.2.50 of the Code includes the IAS 1 requirement that where authorities have

transactions that include amounts that are reclassifiable in the Surplus or Deficit on the Provision of Services, the items listed in Other Comprehensive Income and Expenditure must be grouped into those items that:

a) will not be reclassified subsequently to the Surplus or Deficit on the Provision of Services, and

b) will be reclassified subsequently to the Surplus or Deficit on the Provision of Services when specific conditions are met.

F10 Where local authorities do not have such transactions, ie that are reclassifiable to the Surplus or Deficit on the Provision of Services, they do not have to split Other Comprehensive Income and Expenditure into these groups and the format of the CIES will not be subject to change. However, in such circumstances it is recommended that authorities clarify in their summary of significant accounting policies that, where this is the case, they do not have such transactions and have therefore not grouped the items in Other Comprehensive Income and Expenditure into amounts that may be reclassifiable and amounts that are not, ie that all the amounts in Other Comprehensive Income and Expenditure are not reclassifiable in the Surplus or Deficit on the Provision of Services.

F11 The Code cites the example of gains or losses on Available-for-Sale Financial assets as being those that are most likely to be applicable to local authorities and which would therefore require the authority to split Other Comprehensive Income and Expenditure into such groupings. The Code includes specific criteria for financial assets to be classified as Available for Sale – see the table at paragraph A29 of Module 7. These criteria do not require that such assets are actively marketed for sale. Examples of Available-for-Sale financial assets include equity shareholdings and quoted investments. Therefore, where gains and losses on these types of financial assets are material and may be reclassifiable into the Surplus or Deficit on the Provision of Services, the presentation of items within Other Comprehensive Income and Expenditure that may be reclassifiable and those that are not will apply.

F12 IAS 1 also cites the examples of exchange differences on translating foreign operations and cash flow hedges as gains and losses where reclassification might be required. It is unlikely that these transactions will occur in local authority financial statements but where they do this would also require that the CIES is split between these two groupings.

F13 The requirements introduced by the amendments to IAS 1 (in relation to other comprehensive income) are only a change in the presentation requirements of the Comprehensive Income and Expenditure Statement. These new requirements are intended to highlight the potential


effect to users that these gains or losses may have on the Surplus or Deficit on the Provision of Services. The amounts recognised in Other Comprehensive Income and Expenditure for these items are not subject to change as a result of these new requirements.

F14 The example financial statements sets out an example of the format of the Comprehensive Income and Expenditure Statement for authorities that are required under IAS 1 to provide an appropriate split over the two groupings of Other Comprehensive Income and Expenditure.

G BALANCE SHEET

Introduction G1 The Balance Sheet summarises an authority’s financial position at 31 March each year. In its

top half it contains the assets and liabilities that it holds or has accrued with other parties. As local authorities do not have equity, the bottom half is comprised of reserves that show the disposition of an authority’s net worth, falling into two categories:

� Usable Reserves, which include the revenue and capital resources available to meet future expenditure (eg the General Fund Balance and the Capital Receipts Reserve), and

� Unusable Reserves, which include:

– unrealised gains and losses, particularly in relation to the revaluation of property, plant and equipment (eg the Revaluation Reserve)

– adjustment accounts that absorb the difference between the outcome of applying proper accounting practices and the requirements of statutory arrangements for funding expenditure (eg the Capital Adjustment Account and the Pensions Reserve).

G2 In presenting the Balance Sheet, the Code merges the two types of Unusable Reserve because of historical complications with the Revaluation Reserve. The reserve was only constituted as at 1 April 2007, with any revaluation gains accrued before that date being consolidated into the Capital Adjustment Account. As the Revaluation Reserve is unlikely to truly represent the accumulated total of revaluation gains for a number of years, the reserves recording unrealised gains and losses and the adjustment accounts are presented as a single category of balances – Unusable Reserves.

G3 Paragraph 3.4.2.54 of the Code requires that the purpose of the Balance Sheet is explained in either the explanatory foreword or on the face of the Balance Sheet itself. The Code provides the following example description, which will need to be tailored for local circumstances, particularly to ensure that it is appropriately worded for the authority’s expected readership:

The Balance Sheet shows the value as at the Balance Sheet date of the assets and liabilities recognised by the authority. The net assets of the authority (assets less liabilities) are matched by the reserves held by the authority. Reserves are reported in two categories. The first category of reserves are usable reserves, ie those reserves that the authority may use to provide services, subject to the need to maintain a prudent level of reserves and any statutory limitations on their use (for example the Capital Receipts Reserve that may only be used to fund capital expenditure or repay debt). The second category of reserves is those that the authority is not able to use to provide services. This category of reserves includes reserves that hold unrealised gains and losses (for example the Revaluation Reserve), where amounts


would only become available to provide services if the assets are sold; and reserves that hold timing differences shown in the Movement in Reserves Statement line ‘Adjustments between accounting basis and funding basis under regulations’.

Contents of the Balance SheetG4 Although the Code does not explicitly specify that they should be excluded, the assets and

liabilities of pension funds, charitable funds of which the authority is trustee and common good funds are not assets or liabilities of an authority and should not be recognised in the Balance Sheet. Where disclosed, these are normally presented as separate, specific, statements within the authority’s overall published financial statements. Other statutory funds (such as the Insurance Fund and Capital Fund in Scotland) should be included within the Balance Sheet.

G5 Paragraph 3.4.2.55 of the Code specifies the minimum requirements for lines to be included on the face of the Balance Sheet. However:

� paragraph 3.4.2.56 says that other lines should be included where they are relevant – the example given is biological assets, but this provision gives practitioners authority to include new lines on any occasion that an asset or liability cannot be fitted reasonably into one of the Code’s headings

� paragraph 3.4.2.57 authorises the Code’s specified lines to be disaggregated where an expanded presentation is relevant to an understanding of the authority’s financial position – for instance, an authority might wish to provide greater detail on the various elements of its property, plant and equipment.

G6 Where an authority has nil entries against any of the lines in the minimum requirements, it should apply the materiality provisions of paragraph 3.4.2.26 of the Code to omit the line from its Balance Sheet.

G7 The lines and sub-headings (in italics) specified by paragraph 3.4.2.55 of the Code to be included on the face of the Balance Sheet are (note the Guidance Notes have included a unique (i) or (ii) identifier in the first column with the Code’s alphabetic reference to set out the Balance Sheet items which can be both current and non-current; note also that the items have been presented in a recommended order and therefore the Code’s references may be out of sequence).


a) Property, plant and equipment

This line includes all items of property, plant and equipment held for use in the production or supply of goods and services, for rental to others, or for administrative purposes, and expected to be used during more than one period.

Either on the face of the Balance Sheet or in the notes to the accounts, the line will be analysed into:

� council dwellings*

� other land and buildings*

� vehicles, plant, furniture and equipment*

� infrastructure

� community assets

� assets under construction

� surplus assets not held for sale.*

The items marked * are carried at an appropriate measure of fair value, with the other balances being carried at depreciated historical cost. However, it should be noted that the Code permits (but does not require) community assets to be measured in accordance with the measurement requirements for heritage assets (see Module 4, section O of these Guidance Notes).

Property, Plant and Equipment is discussed in greater detail in sections B to E of Module 4 of these Guidance Notes.

b) Heritage assets This is a separate class of asset (land, building, or artefact/exhibit) that is held principally for its contribution to knowledge or culture and meets the definition of a heritage asset.

Heritage assets may be either tangible or intangible assets and must be carried at valuation (or, in certain circumstances, cost).

The accounting implications of heritage assets are covered by section O of Module 4 of these Guidance Notes.

c (i)) Investment property (including held for sale where the authority has opted to disclose this as a separate category) (non-current investment property)

This is a separate class of property (land or a building, or part of a building, or both) that is held solely to earn rentals or for capital appreciation, or both, rather than for:

� use in the production or supply of goods or services, or for administrative purposes, or

� sale in the ordinary course of operations.

Investment properties are carried at their market value.

The Code specifies that investment properties that subsequently meet the classification criteria for assets held for sale (see section N of Module 4 of the Guidance Notes) must continue to be accounted for as investment property, but may be reported separately as investment property held for sale.

The accounting implications of investment properties are covered by section H of Module 4 of these Guidance Notes.


d (i)) Intangible assets (including goodwill for group accounts only) (non-current intangible assets)

This line will comprise any identifiable non-monetary assets without physical substance, but only if they are controlled by the authority as a result of past events, and future economic benefits or service potential is expected to flow to the authority. The most common item posted to this line will be software, but might also cover such things as rights to use land.

It is not expected that the single authority accounts will include goodwill, but this will potentially be a feature of group accounts.

Intangible assets are normally carried at amortised historical cost, but fair value may be applicable in restricted cases.

Intangible assets are discussed in section I of Module 4 of these Guidance Notes.

e (i)) Assets held for sale (non-current assets held for sale)

This will be a rarely used line as the Assets Held for Sale classification is usually restricted to property or disposal groups that are expected to be sold within 12 months. See line e (ii)) for further details.

f (i)) Long-term investments (including net pensions asset) (non-current investments)

This line will comprise non-property investments that do not meet the definition of ‘current’ – see paragraph G10.

Depending on their characteristics, they will be carried at amortised cost or fair value.

Accounting for investments is covered in section C of Module 7 of these Guidance Notes.

It is not expected that any authority will have a net pensions asset (ie an excess of attributable investments in a pension fund over the liability to pay future pensions), but this would be the relevant line if so. For most authorities, gross pension assets will be netted off the gross pensions liabilities and posted to line v).

g) Investment in associates and joint ventures

Although the Code does not specify it, this line will be relevant to group accounts only. It will record the authority’s interest in associates and jointly controlled entities prepared on the equity basis.

In the single entity financial statements, the investments will be carried in line e) at fair value or (if group accounts are prepared) possibly at cost.

Where an authority has negative balances in respect of individual associates or joint ventures, the equity interest in these associates should be posted to a separate ‘liabilities in associates and joint ventures’ line.

h (i)) Long-term debtors (non-current debtors)

This line will comprise amounts owed to the authority that are not investments and do not meet the definition of ‘current’ – see paragraph G10.

Debtors are discussed in section C of Module 5 of these Guidance Notes.

i) Deferred tax asset (group accounts only)

Relevant only to group accounts – figures will come from the balance sheets of group members.

j) Long-term assets The sum of lines a), b), c (i)), d (i)), e (i)), f (i)), g), h (i)) and i).


c (ii)) Held-for-Sale Investment Property (where the authority has opted to disclose this as a separate category)

The Code specifies that investment properties that subsequently meet the classification criteria for assets held for sale (see section N of Module 4 of the Guidance Notes) must continue to be accounted for as investment property, but may be reported separately as investment property held for sale. Items in this line are held-for-sale investment properties that meet the definition of a current asset – see paragraph G10.

e (ii)) Assets Held for Sale Assets Held for Sale are items of property, plant or equipment or a group of assets and liabilities whose carrying amount is to be recovered principally through a sale rather than its continued use by the authority.

They are measured at the lower of the value they had when it was agreed they would be sold and fair value less costs to sell.

In the exceptional circumstances that assets meet the Assets Held for Sale definition but a sale is not anticipated within one year, they will be posted to line e (i)).

Further guidance on Assets Held for Sale is provided in section N of Module 4 of these Guidance Notes.

d (ii)) Intangible Assets (current assets)

Intangible assets (see item d (i)) above) meeting the definition of a current asset (see paragraph G10).

f (ii)) Short-term investments This line will comprise non-property investments (excluding Cash Equivalents – see line l)) that meet the definition of ‘current’ – see paragraph G10.

Depending on their characteristics, they will be carried at amortised cost or fair value.

Accounting for investments is covered in section C of Module 7 of these Guidance Notes.

k) Inventories Inventories are materials or supplies that will be consumed in producing goods or providing services or will be sold or distributed as part of an authority’s ordinary business.

Balances are carried at the lower of cost or net realisable value.

Guidance on inventories is provided in section A of Module 5 of these Guidance Notes.

h (ii)) Short-term debtors (current debtors)

This line will comprise amounts owed to the authority that are not investments but meet the definition of ‘current’ – see paragraph G10.

Debtors are discussed in section C of Module 5 of these Guidance Notes.

l) Cash and cash equivalents Cash is represented by notes and coins held by the authority and deposits available on demand. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. See also line o).

Cash and cash equivalents are covered in section H of this module in the context of the Cash Flow Statement.

m) Current tax asset (group accounts only)


n) Current assets The sum of lines c (ii)), e (ii)), d (ii)), f (ii)), k), h (ii)), l) and m).


o) Bank overdraft Per paragraph 3.4.2.73 of the Code, bank overdrafts are shown separately as liabilities in the Balance Sheet only where they are not an integral part of an authority’s cash management. If the overdraft at 31 March arises on a bank balance that fluctuates between being in credit and overdrawn (taken singly or as part of formal set-off arrangements for a range of accounts with the bank), then it should be netted off against Cash and Cash Equivalents in line l).

p (i)) Short-term borrowing (current borrowing)

This line will comprise loans taken out by the authority (and other arrangements with the substance of a loan) that meet the definition of ‘current’ – see paragraph G11.

They will be carried at amortised cost.

Accounting for borrowings is covered in section B of Module 7 of these Guidance Notes.

q (i)) Short-term creditors (current creditors)

This line includes the amounts owed by the authority for goods and services supplied to it and in relation to finance leases and PFI and similar contracts that meet the definition of ‘current’ – see paragraph G11.

Creditors are discussed in section A of Module 8 of these Guidance Notes.

r (i)) Provisions (current provisions)

The line will contain liabilities of uncertain timing or amount that meet the definition of ‘current’ – see paragraph G11.

Further guidance on provisions is available in section B of Module 8 of these Guidance Notes.

s (i)) Liabilities in disposal groups See lines e (i) and (ii)). Where a disposal group includes liabilities, the group will be shown separately under this heading where the amount of the liabilities exceeds the amount of assets in the group. This line will include liabilities in a disposal group, meeting the definition of a current liability – see paragraph G11.

w (i)) Donated Assets Account (current donated assets account)

Gains arising from the difference between the fair value and any consideration given for a donated asset are retained in this line while conditions remain attached to the donation but unsatisfied. See section C of Module 2 for further details. These are amounts in relation to donated assets meeting the definition of a current liability – see paragraph G11.

x (i)) Grants Receipts in Advance (Revenue/Capital) (current)

Grants and other contributions given to an authority are retained in this line whilst conditions remain attached and unsatisfied to the financial assistance. See section C of Module 2 of these Guidance Notes for further details. These are grants received in advance meeting the definition of a current liability – see paragraph G11.

Note that paragraph 2.3.2.17 of the Code establishes a separate capital grants receipts in advance account and therefore authorities will need to maintain a separate account for both this and a revenue grants receipts in advance account.

t) Current tax liability (group accounts only)


u) Current liabilities The sum of lines o), p (i)), q (i)), r (i)), s (i)), t), w (i)) and x.


q (ii)) Long-term creditors This line includes the amounts owed by the authority for goods and services supplied to it that do not meet the definition of ‘current’ – see paragraph G11.

Creditors are discussed in section A of Module 8 of these Guidance Notes.

p (ii)) Long-term borrowing (non-current borrowing)

This line will comprise loans taken out by the authority (and other arrangements with the substance of a loan) that do not meet the definition of ‘current’ – see paragraph G11.

They will be carried at amortised cost.

Accounting for borrowings is covered in section B of Module 7 of these Guidance Notes.

v) Other long-term liabilities (comprising net pensions liability, deferred liabilities and any other long-term liabilities) – (other non-current liabilities)

This is a summary line for any other liabilities not covered by the other headings. For most authorities, the net pension liability is likely to be material enough to justify a line of its own. Guidance on the net pension liability is provided in section D of Module 6.

Other balances that are candidates for inclusion in this line are liabilities outstanding in relation to finance leases (section F of Module 4) and service concession (PFI/PPP) arrangements (section G of Module 4).

r (ii)) Provisions (non-current provisions)

The line will contain liabilities of uncertain timing or amount that do not meet the definition of ‘current’ – see paragraph G11.

Further guidance on provisions is available in section B of Module 8 of these Guidance Notes.

s (ii)) Liabilities in disposal groups (non-current liabilities in disposal groups)

See lines e (i) and (ii)). Where a disposal group includes liabilities, the group will be shown separately under this heading where the amount of the liabilities exceeds the amount of assets in the group. This line will include liabilities in a disposal group not meeting the definition of a current liability – see paragraph G11.

w (ii)) Donated Assets Account (non-current donated assets account)

Gains arising from the difference between the fair value and any consideration given for a donated asset are retained in this line while conditions remain attached to the donation but unsatisfied. See section C of Module 2 for further details. These are donated assets not meeting the definition of a current liability – see paragraph G11.

x (ii)) Grants Receipts in Advance (Revenue/Capital) (non-current)

Grants and other contributions given to an authority are retained in this line while conditions remain attached to the financial assistance and unsatisfied. See section C of Module 2 of these Guidance Notes for further details. These are grants received in advance not meeting the definition of a current liability – see paragraph G11.

Note that paragraph 2.3.2.17 of the Code establishes a separate capital grants receipts in advance account and therefore authorities will need to maintain a separate account for both this and a revenue grants receipts in advance account.

y) Deferred tax liability (group accounts only)


z) Long-term liabilities The sum of lines p (ii)), q (ii)), r (ii)), s (ii)), v), w (ii), x (ii)) and y).

aa) Net assets The sum of lines j), n), u) and z).


ab) Usable reserves (including group reserves where appropriate)

Usable reserves will generally comprise (where applicable):

� General Fund Balance including earmarked portion (Scotland) and in England and Wales associated earmarked reserves

� Housing Revenue Account Balance including earmarked portions (Scotland) and in England and Wales associated earmarked reserve

� Capital Receipts Reserve

� Capital Grants Unapplied Account

� Major Repairs Reserve (England and Wales)

� Capital Fund (Scotland and Northern Ireland)

� Repairs and Renewals Fund (Scotland and Northern Ireland)

� Insurance Fund (Scotland)

� Business Rate Supplement Revenue Account (England).

For further details, see section E of this Module on the Movement in Reserves Statement.

ac) Unusable reserves Unusable reserves will generally comprise:

Revaluation balances

� Revaluation Reserve

� Available for Sale Financial Instruments Reserve.

Adjustment accounts

� Pensions Reserve

� Capital Adjustment Account

� Deferred Capital Receipts (England and Wales)

� Financial Instruments Adjustment Account

� Collection Fund Adjustment Account (England)

� Unequal Pay Back Pay Account (England)

� Accumulating Absences Adjustment Account

� Employee Statutory Adjustment Account (Scotland).

For further details, see section E of this module on the Movement in Reserves Statement.

ad) Total reserves The sum of lines ab) and ac). Balances to line aa).

G8 It is important to order the Balance Sheet appropriately so that the movement in Total Reserves matches to the outturn on the Movement in Reserves Statement and that assets and liabilities are appropriately identified as current or non-current. The structure set out in paragraph 3.4.2.55 of the Code will achieve this.

G9 In the unusual situation that an authority has a balance that does not fit any of the standard lines, practitioners will need to consider whether it is an asset, a liability or a reserve and (if it is an asset or liability) whether it is current or non-current. The balance can then be placed in an appropriate location in the Balance Sheet.

Current or Non-current?

G10 Paragraph 3.4.2.58 of the Code specifies when an asset is to be regarded as current. Assets are to be treated as long-term unless:


� the asset is cash or a cash equivalent (unless the asset is restricted from being exchanged or used to settle a liability before the end of the next financial year)

� the asset is held primarily for the purpose of trading (eg inventories), or

� for all other asset types, the asset is expected to be realised within the next financial year.

The cut-off of the end of the next financial year can be extended if the normal operating cycle (the period over which assets are acquired for processing and eventually realised in cash) is longer than 12 months. However, as authorities generally work on an annual basis, this provision of the Code is unlikely to be applicable.

G11 Paragraph 3.4.2.59 of the Code specifies when a liability is to be regarded as current. Liabilities are to be treated as long-term unless:

� the liability is held primarily for the purpose of trading

� for all other asset types, the liability is due to be settled within the next financial year, or

� the authority does not have an unconditional right to defer settlement of the liability for at least the next 12 months. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

As is the case with assets in paragraph G10, the cut-off of the end of the next financial year can be extended if the normal operating cycle were to be taken as longer than 12 months.

Disclosures in Relation to the Balance SheetG12 Paragraphs 3.4.2.60 and 3.4.2.61 of the Code set out a number of disclosure requirements

relating to the Balance Sheet:

� Paragraph 3.4.2.60 is largely a reminder that a breakdown of the significant lines listed for the Balance Sheet in paragraph 3.4.2.55 will be needed, either on the face of the Balance Sheet or in the notes to the accounts (as the authority deems appropriate). In most instances, these breakdowns are required in the sections of the Code dealing with the individual balances. Practitioners will need to be alert for any balances that do not have a mandatory breakdown but need a more detailed analysis in order to assist the reader’s understanding.

� Paragraph 3.4.2.61 supplements the requirements for extra detail on the face of the Movement in Reserves Statement or in the notes to the accounts – see paragraph E8. The additional requirements are that the nature and purpose of each reserve should be disclosed, together with the movement in the reserve for the year. With regard to the latter, this will entail the disclosure of movements between unusable reserves that are not transparent in the Movement in Reserves Statement.

These requirements might be addressed by preparing a separate note for each of the unusable reserves, showing the movements in the year and cross-referencing as far as possible to other notes (eg the note detailing the contents of the Adjustments between Accounting Basis and Funding Basis line of the Movement in Reserves Statement). However, a simpler analysis may be possible where this presentation would result in the disclosure of excessive and immaterial detail.


H CASH FLOW STATEMENT

Introduction H1 The Cash Flow Statement summarises the flows of cash that have taken place into and out of

the authority’s bank accounts over the financial year. It separates the flows into:

� those that have occurred as a result of the authority’s operations

� those arising from the authority’s investing activities (including cash flows related to non-current assets), and

� those attributable to financing decisions.

H2 The supporting accounting standard for the Code’s requirements is IAS 7 Statement of Cash Flows.

H3 Paragraph 3.4.2.62 of the Code requires that the purpose of the Cash Flow Statement is explained in either the explanatory foreword or on the face of the Cash Flow Statement itself. The Code provides the following example description, which will need to be tailored for local circumstances, particularly to ensure that it is appropriately worded for the authority’s expected readership:

The Cash Flow Statement shows the changes in cash and cash equivalents of the authority during the reporting period. The statement shows how the authority generates and uses cash and cash equivalents by classifying cash flows as operating, investing and financing activities. The amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of the authority are funded by way of taxation and grant income or from the recipients of services provided by the authority. Investing activities represent the extent to which cash outflows have been made for resources which are intended to contribute to the authority’s future service delivery. Cash flows arising from financing activities are useful in predicting claims on future cash flows by providers of capital (ie borrowing) to the authority.

H4 Paragraph 3.4.2.75 of the Code confirms that all transactions that do not require the use of cash and cash equivalents should be excluded from the Cash Flow Statement. However, this is a requirement relating to presentation and disclosure, rather than preparation. Non-cash transactions can therefore be included in the figures used in compiling the statement, provided that they will net off each other within the headings and classes of transactions that need to be disclosed on the face of the statement or the related notes.

H5 There are two methods of preparing the Cash Flow Statement, with the Code having different disclosure requirements depending on which is used:

� the direct method – the statement is prepared using cash records as source documents

� the indirect method – the statement is prepared using the Surplus or Deficit on the Provision of Services and cash flows are derived by adjusting for non-cash items, removing the effects of accruals and extracting transactions relating to investing or financing activities.

H6 The Code is not prescriptive about which method practitioners use. However, the indirect method is required for Whole of Government Accounts purposes and therefore it is recommended that authorities use this approach to avoid having to prepare the statement


twice. Once a method has been chosen, then different presentational requirements apply, attributable to the direct method’s ability to provide a detailed breakdown of the elements of operating, investing and financing activities and a need with the indirect method to document the process of adjustment.

Cash and Cash EquivalentsH7 As the Cash Flow Statement reflects movements in cash and cash equivalents, the definition

of these is central to the proper preparation of the statement. The overall movement on the statement will need to reconcile to the Balance Sheet amounts for these assets, with any movements within cash and cash equivalents (eg a payment into the authority’s current account upon the maturity of a cash equivalent) not being treated as a cash flow.

H8 However, all charges and credits on accounts or investments qualifying as cash and cash equivalents, such as bank interest, bank fees, deposits or withdrawals other than movements wholly within the accounts, will be cash inflows and outflows.

Cash

H9 The definition of cash in paragraph 3.4.2.1 of the Code is ‘cash on hand and demand deposits’.

H10 Neither the Code nor IAS 7 explains what constitutes a demand deposit. However, these are generally accepted to be deposits with financial institutions that are repayable on demand and available within 24 hours, or one working day, without penalty. Demand deposits, therefore, will include accounts where additional funds may be deposited at any time and funds withdrawn at any time without prior notice, eg a bank current account.

H11 Paragraph 3.4.2.14 of the Code explains that Cash will also include bank overdrafts that are repayable on demand and that are integral to an authority’s cash management. The key indicator for an overdraft being integral is that the bank balance fluctuates from being in credit to being overdrawn. Overdrafts are therefore excluded from the definition where they are clearly arrangements for borrowing rather than balances that arise from time to time as a result of an authority’s day-to-day cash management. This exclusion would not extend to bank accounts that are normally in deficit because they are used largely for cash outflows but which are subject to formal netting-off arrangements to arrive at a cleared figure for the authority’s overall deposit with the bank.

H12 This exceptional treatment applied to bank overdrafts will not apply to any other borrowing relationships. For instance, any liabilities recognised in relation to monies held on behalf of trust funds and common goods funds will not be netted off the cash balance.

Cash Equivalents

H13 The definition of cash equivalents in paragraph 3.4.2.2 of the Code is ‘short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value’.

H14 Qualifying investments will have a short maturity. There is no particular definition of what this means, but paragraph 7 of IAS 7 suggests that this would be a period of three months or less from the date of acquisition of the investment. Beyond this point, the risk increases that


there might be a change in value for the investment. It should be noted, however, that the first part of the definition is integral to the definition of cash equivalents that the investment has to be highly liquid.

H15 It is not a requirement that investments have to be with financial institutions. Gilts, certificates of deposit, money market instruments and corporate bonds are all potentially included within the definition, but only if they are readily convertible to cash, with insignificant risk of changes in value. Per paragraph 3.4.2.15 of the Code, it should also be the case that the instrument is held so that the authority has monies available to settle its liabilities in the short term, rather than to make an investment gain from favourable rates of interest or capital appreciation. Authorities will have to make careful judgements about what instruments to include.

H16 The assessment of short maturity is to be made when an investment is acquired. Longer-term investments will not then fall into the cash equivalents definition once they come within three months of maturity.

H17 Where the counterparty to a short-term investment shows evidence of financial problems so that there is doubt that it can fulfil the requirements of the agreement, the instrument should be declassified as a cash equivalent as there is a risk that the cash will not be readily convertible or the maturity date will not be met.

ILLUSTRATION: CASH EQUIVALENTS

Deposit repayable with 24 hours’ notice – no loss of interest – an authority has cash on deposit with a bank; the deposit is repayable with 24 hours’ notice, without loss of interest earned.

This deposit would qualify as a cash equivalent as it has a short maturity (repayable with 24 hours’ notice) and there is an insignificant risk of change in value (no loss of interest).

Deposit repayable with 24 hours’ notice – loss of interest – an authority has cash on a two-year term deposit with a bank; if the deposit is repayable with 24 hours’ notice, the authority incurs a penalty with the loss of all interest earned.

An investment or a deposit can be classified as a cash equivalent only when it is held for the purpose of meeting short-term cash needs and is convertible into known amounts of cash and subject to insignificant risk of changes in value. Although the principal remains unchanged, the authority will lose accumulated interest over the two years on the underlying deposit; thus effectively it will be penalised by early withdrawal. As the loss of all interest is likely to be significant, this deposit would not normally qualify as a cash equivalent.

Bond maturing within three months of Balance Sheet date – an authority purchased a bond on 1 January 20X7. The bond's maturity date is 28 May 20X7. The bond cannot be withdrawn early under any circumstances.

The bond would not normally be classified as a cash equivalent at 31 March 20X7. At the date of acquisition, the maturity of the bond is five months. This does not accord with the short maturity of three months or less from the date of acquisition, suggested in IAS 7. The fact that the bond matures less than three months from the Balance Sheet date is not a reason for classification as a cash equivalent at that point. The maturity period is assessed from the date of acquisition, not from the Balance Sheet date.


Marketable investment products – an authority acquires an instrument whose interest rate is reset every 28 days based on market demand. The contractual maturity is one year. However, the instrument is priced and subsequently traded like a short-term investment because of the interest rate reset feature. Such instruments are bought and sold in the market through a bidding process (indicating a liquid market is in place).

The instrument relies on third parties to provide current liquidity, not the issuer. Furthermore, the legal maturity period of the instrument is greater than three months on the date of acquisition. The instrument does not meet the definition of cash equivalents on both counts.

Foreign Currency

H18 Where an authority has transactions in foreign currencies, paragraph 3.4.2.67 of the Code requires the transactions to be converted into sterling using the exchange rate applicable at the date the cash flow took place.

Obtaining or Losing Control of Subsidiaries

H19 Paragraph 3.4.2.72 of the Code suggests that accounting complications may arise for the Cash Flow Statement if an authority experiences cash flows arising from obtaining or losing control of subsidiaries or other businesses. Practitioners are required by the Code to refer to IAS 7.

H20 The relevant paragraphs of IAS 7 are 39 to 42B. These require the separate presentation of the net cash flows arising from obtaining or losing control as investing activities (the cash consideration paid or received), together with the separate disclosure of the amounts of assets and liabilities (including cash) acquired or disposed of.

Presentational Requirements for the Direct MethodH21 The minimum requirements for the face of the Cash Flow Statement prepared using the direct

method are specified in paragraph 3.4.2.64 of the Code, as follows.

a) Operating activities See paragraph H24

b) Investing activities See paragraph H25

c) Financing activities See paragraph H26

d) Net increase or decrease in cash and cash equivalents

The sum of lines a) to c)

e) Cash and cash equivalents at the beginning of the reporting period

The equivalent of line f) for the previous reporting period

f) Cash and cash equivalents at the end of the reporting period

The sum of lines d) and e)

H22 Paragraph 3.4.2.66 of the Code requires that the detail of the major classes of gross cash receipts and gross cash payments are disclosed as a minimum in the notes to the accounts. However, where an authority considers that it would be relevant to an understanding of the authority’s cash flow position, information should be shown on the face of the statement.


H23 Although the Code specifies the individual elements that make up operating, investing and financing activities, it does not specify that these are the ‘major classes’ that need to be disclosed in the notes. Some scope therefore exists for practitioners to amalgamate some of the elements to make up major classes, taking into account materiality and the significance of the elements to the authority’s business.

H24 The classes for operating activities are set out in paragraph 3.4.2.65 of the Code, as follows.

a) Taxation The Code’s requirements for NDR and council tax cash flows are substantially different from the requirements of IAS 7, where agency arrangements would be accounted for as operating activities, with gross inflows and outflows of cash collected on behalf of others being presented as a net figure.

The requirements are as follows:

� NDR in Wales and Scotland: per paragraph 2.8.2.1 (d) of the Code, in Wales and Scotland all cash flows relating to the collection of NDR and payments to the pool are to be treated as relating to financing activities, except (in England and Wales) for the allowance for costs of collection retained by the authority. As payment for the rendering of an agency service, this allowance should be posted to line d). The balance of cash flows is posted to the financing section – line b) or e) depending on whether it is a net inflow or outflow.

� NDR in England (billing authority): per paragraph 2.8.2.5 of the Code, in England this line should contain only the net non-domestic rating income cash for the year that is deemed attributable to the billing authority (see paragraph H8 of Module 2 of these Guidance Notes for guidance on how this figure should be calculated). The balance of non-domestic rates related cash inflows and outflows (the difference between the central government and the major preceptors’ share of the net cash collected from non-domestic rating debtors and net cash paid to central government and major preceptors and settlement of the previous year’s surplus or deficit on the Collection Fund for non-domestic rating income) is posted to the Financing Activities section of the statement – line b) or e), depending on whether it is a net inflow or outflow.

� NDR in England (precepting authority): per paragraph 2.8.2.6 of the Code, this line should contain the net non-domestic rating income cash received from the Collection Fund in the year (ie the major preceptors’ share of non-domestic rating income for the year plus or minus the authority’s settlement in relation to the Collection Fund surplus/deficit for the previous year). The Code states that the difference between the net cash received from the Collection Fund and the major preceptor’s share of cash collected from NDR debtors by the billing authority in the year must be included within financing activities, but as this is an accrual rather than a cash flow, no entry is required.


a) Taxation (continued) � Council tax in England (billing authority): per paragraph 2.8.2.16 of the Code, this line should contain only the council tax collected in the year that is deemed attributable to the billing authority (see paragraph H25 of Module 2 of these Guidance Notes for guidance on how this figure should be calculated). The balance of council tax related cash inflows and outflows (the difference between the preceptors’ share of cash collected and net cash paid to preceptors for their precept and settlement of the estimated surplus/deficit on the Collection Fund for council tax) is posted to the Financing Activities section of the statement – line b) or e), depending on whether it is a net inflow or outflow.

� Council tax in England (precepting authority): per paragraph 2.8.2.17 of the Code, this line should contain the net council tax cash received from the Collection Fund in the year (ie the precept for the year plus the authority’s settlement in relation to the Collection Fund surplus/deficit for the previous year for council tax). The Code states that the difference between the net cash received from the Collection Fund and the major preceptor’s share of cash collected from council tax debtors by the billing authority in the year must be included within financing activities, but as this is an accrual rather than a cash flow, no entry is required.

� Council tax in Scotland: per paragraph 2.8.2.19 of the Code, this line contains the net cash inflow for council tax received from debtors or paid to creditors.

� Council tax in Wales: per paragraph 2.8.2.22 of the Code, this line contains the net cash inflow for council tax received from debtors or paid to creditors (without any deduction for precepts paid to major precepting authorities).

This line does not include any amounts in relation to taxes such as VAT. The Code does not specify how sales taxes are to be treated. The accepted practice is that VAT is not included gross in the lines for sales of goods and services and cash paid to suppliers, but that the net cash flows between suppliers, customers and Her Majesty’s Revenue and Customs is posted to one of those lines (depending on whether it is a net cash outflow or inflow).

b) Grants All grants, specific and non-specific, are posted to this line, except for those specifically paid towards the cost of purchasing property, plant and equipment or intangible assets (Investing Activities line f)) or to meet the principal repayments on borrowing (Financing Activities line b)).

c) Housing rents (housing authorities only)

This line will only include rents actually paid by tenants and should exclude rebates awarded and accrued amounts.

d) Sales of goods and rendering of services

All amounts received for the sale of goods and rendering of services are posted to this line, except to the extent that they can be allocated to investing or financing activities (eg the sale of non-current assets).

This line will include the net cash flow relating to VAT if it is a net inflow – see commentary on line a).

e) Interest received All interest received by the authority should be accounted for here. Paragraph 31 of IAS 7 permits interest cash flows to be posted to any of the three sections of the statement, provided that the classification is used consistently from year to year. The Code has a straightforward expectation that interest received will be posted to this line in Operating Activities.


f) Other receipts from operating activities

All other operating cash inflows that cannot be allocated to the categories of investing or financing activities should be recorded against this line.

g) Cash inflows generated from operating activities

The sum of items a) to f).

h) Cash paid to and on behalf of employees

This line should include all remuneration paid to employees, including salaries, bonuses and allowances, and amounts of income tax, national insurance and employee’s pension contributions paid to HMRC and pension funds out of gross salaries.

It should exclude employer’s national insurance, employer’s pension contributions and payments to pensioners, as these payments are employee related but not paid to or on behalf of employees. These items should be posted to line o).

i) Housing benefit paid out (housing authorities only)

The cash paid to non-council tenants.

j) National non-domestic rate payments to national pool (billing authorities only)

Per the discussion in line a) concerning non-domestic rates (Wales and Scotland), paragraph 2.8.2.1 (d) of the Code requires no entry against this line.

k) Precepts paid (billing authorities only)

This line includes precepts paid to preceptors during the year.

In England, this applies only to parish and town councils. Precepts paid to major precepting authorities in respect of council tax and to central government and major precepting authorities for non-domestic rates are treated as financing transactions – see line a).

l) Payments to the Capital Receipts Pool (in England and Wales only)

The cash actually paid to the pool in the year.

m) Cash paid to suppliers of goods and services

All amounts paid for the purchase of goods and rendering of services are charged to this line, except to the extent that they can be allocated to investing or financing activities (eg the purchase of non-current assets).

This line will include the net cash flow relating to VAT if it is a net outflow – see commentary on line a).

n) Interest paid All interest paid by the authority is posted to this line. Paragraph 31 of IAS 7 permits interest cash flows to be posted to any of the three sections of the statement, provided that the classification is used consistently from year to year. Paragraph 32 requires that a single figure for total interest paid is also disclosed, whether charged as an expense or capitalised as borrowing costs. The Code has a straightforward expectation that interest received will be posted to this line in Operating Activities.


o) Other payments for operating activities

All other cash outflows that cannot be allocated to the categories of investing or financing activities should be recorded against this line. The line will include all payments made for which no goods or services are received (transfer payments, except for housing benefit posted to line h), employer’s national insurance, employer’s pensions contributions and payments to pensioners.

p) Cash outflows generated from operating activities

The sum of items h) to o).

q) Net cash flows from operating activities

The sum of items g) and p).

H25 The classes for investing activities are set out in paragraph 3.4.2.65 of the Code, as follows.

a) Purchase of property, plant and equipment, investment property and intangible assets

The cash paid for additions to non-current asset balances, including acquisitions, construction and enhancements. Interest paid that has been capitalised as borrowing costs will be excluded, as the requirement of paragraph 32 of IAS 7 is that interest paid is presented in the statement as a total figure (whether expensed or capitalised).

b) Purchase of short-term and long-term investments

All cash advanced for the acquisition of investments is posted to this line.

This will exclude the acquisition of investments that fall within the authority’s definition of cash equivalents, which are not treated as cash flows for the purposes of the statement.

The line includes investments in associates, joint ventures and subsidiaries.

c) Other payments for investing activities

Any cash outflows relating to investing activities that cannot be accommodated within lines a) and b) are posted here.

d) Proceeds from the sale of property, plant and equipment, non-current assets held for sale, investment property and intangible assets

This line contains all cash received from the sale or disposal of non-current assets.

Where housing authorities in England and Wales pay a proportion of capital receipts over to the national pool, this outflow will be recorded in line l) of Operating Activities and not netted off here.

e) Proceeds from short-term and long-term investments

All cash received from the disposal of investments or upon their maturity is posted to this line. This should exclude any amounts received on disposal relating to the settlement of outstanding interest, payments which will be included in line e) of Operating Activities.

This line will exclude the disposal of investments that fall within the authority’s definition of cash equivalents, which are not treated as cash flows for the purposes of the statement.

The line includes investments in associates, joint ventures and subsidiaries.


f) Other receipts from investing activities

Any cash inflows relating to investing activities that cannot be accommodated within lines d) and e) are posted here.

The line will include grants specifically received for the cost of purchasing property, plant and equipment or intangible assets.

g) Net cash flows from investing activities

The sum of items a) to f).

H26 The classes for financing activities are set out in paragraph 3.4.2.65 of the Code, as follows.

a) Cash receipts of short- and long-term borrowing

This line records the cash received as a result of the authority taking out loans or other borrowing.

b) Other receipts from financing activities

Any cash inflows relating to financing activities that cannot be accommodated within line a) are posted here. Examples would be the receipt of a discount on the early repayment of debt and receipts of grants paid towards meeting principal repayments on borrowing.

The Code also requires certain entries relating to the collection of local taxes (see item a) relating to operating activities in paragraph H24 for further details):

� if a net inflow, the difference between the cash collected from NDR taxpayers and the amount paid into the pool in Wales and Scotland

� if a net inflow, the difference for billing authorities in England between the preceptors’ share of council tax cash collected and net cash paid to preceptors for their precept and settlement of the estimated surplus/deficit on the Collection Fund

� if a net inflow, the difference for billing authorities in England between central government and the major preceptors’ share of non-domestic rating income net cash collected and net cash paid to central government and major preceptors and settlement of the previous year’s surplus or deficit on the Collection Fund.

c) Cash payments for the reduction of the outstanding liabilities relating to finance leases and on Balance Sheet PFI contracts

The element of any cash paid to lessors or PFI contractors that is deemed to constitute the repayment of principal. This line should include amounts in relation to all contracts that have been accounted for as if they were finance leases (eg contracts with the substance of a lease and non-PFI service concessions).

d) Repayments of short- and long-term borrowing

This line records the cash paid as a result of the authority repaying the principal part of any loans or other borrowing, whether by instalments or upon maturity.


e) Other payments for financing activities

Any cash outflows relating to financing activities that cannot be accommodated within lines c) and d) are posted here. An example would be the payment of a premium on the early repayment of debt.

The Code also requires certain entries relating to the collection of local taxes (see item a) relating to operating activities in paragraph H24 for further details):

� if a net outflow, the difference between the cash collected from NDR taxpayers and the amount paid into the pool in Wales and Scotland

� if a net outflow, the difference for billing authorities in England between the preceptors’ share of council tax cash collected and net cash paid to preceptors for their precept and settlement of the estimated surplus/deficit on the Collection Fund

� if a net outflow, the difference for billing authorities in England between central government and the major preceptors’ share of non-domestic rating income net cash collected and net cash paid to central government and major preceptors and settlement of the previous year’s surplus or deficit on the Collection Fund.

f) Net cash flows from financing activities

The sum of items a) to e).

Presentational Requirements for the Indirect MethodH27 The minimum requirements for the face of the Cash Flow Statement prepared using the

indirect method are specified in paragraph 3.4.2.68 of the Code, as follows.

a) Net surplus or deficit on the provision of services

The amount per the equivalent line in the Comprehensive Income and Expenditure Statement.

b) Adjust net surplus or deficit on the provision of services for non-cash movements

See paragraph H30.

c) Adjust for items in the net surplus or deficit on the provision of services that are investing or financing activities

See paragraph H31.

d) Net cash flows from operating activities The sum of lines a) to c).

e) Investing activities See paragraph H25.

f) Financing activities See paragraph H26.

g) Net increase or decrease in cash and cash equivalents

The sum of lines d) to f).

h) Cash and cash equivalents at the beginning of the reporting period

The equivalent of line i) for the previous reporting period.

i) Cash and cash equivalents at the end of the reporting period

The sum of line g) and h).

H28 Paragraph 3.4.2.70 of the Code requires that the detail of the major classes of gross cash receipts and gross cash payments are disclosed as a minimum in the notes to the accounts. However, where an authority considers that it would be relevant to an understanding of the authority’s cash flow position, information should be shown on the face of the statement.


H29 Although the Code specifies the individual elements that make up adjustments to the Net Surplus or Deficit on the Provision of Services that are investing and financing activities, it does not specify that these are the ‘major classes’ that need to be disclosed in the notes. Some scope therefore exists for practitioners to amalgamate some of the elements to make up major classes, taking into account materiality and the significance of the elements to the authority’s business.

H30 Paragraph 3.4.2.69 of the Code specifies the reconciling amounts that need to be included in the adjustments to the Net Surplus or Deficit on the Provision of Services for non-cash movements, as follows.

a) Depreciation All depreciation charges should be removed as they do not involve cash flows.

b) Impairment and downward valuations Where revaluation and impairment losses have been charged to the Comprehensive Income and Expenditure Statement, they should be removed here.

c) Amortisations Amortisations of intangible assets are also removed.

d) Increase/decrease in impairment for bad debts

The net movement on the allowance for bad debts as debited/credited to the Comprehensive Income and Expenditure Statement.

e) Increase/decrease in creditors This line will feature the net movement in creditors to the extent that the expenditure to which the creditors relate is chargeable to the Comprehensive Income and Expenditure Statement.

f) Increase/decrease in debtors This line will feature the net movement in debtors to the extent that the income to which the debtors relate is credited to the Comprehensive Income and Expenditure Statement.

g) Increase/decrease in inventories (stock) This line will feature the net movement in inventories to the extent that the inventories will be charged to the Comprehensive Income and Expenditure Statement.

h) Movement in pension liability This figure should comprise:

� the reversal of the current service cost, past service cost, settlements, net interest on the defined benefit liability (asset), and remeasurements of the net defined benefit liability/(asset) where they occur for long-term employee benefits

� the addition of the cash paid out in the year in the form of employer’s contributions to pension funds and direct payments to pensioners.


i) Carrying amount of non-current assets and non-current assets held for sale, sold or derecognised

The gain or loss on disposal of non-current assets will have been credited or debited to the Comprehensive Income and Expenditure Statement. This line removes the element of the gain or loss made up of the written-off carrying amount of the asset disposed of. The cash receipts will be reversed out to the investing activities section (see line c)) in the table in paragraph H31.

j) Other non-cash items charged to the net Surplus or Deficit on the Provision of Services

Other items that will need to be adjusted for include:

� provisions – reverse out the movement on the provision debited or credited to the Comprehensive Income and Expenditure Statement and replace with the cash payments made in the year out of the provision

� movements in the value of investment properties

� amounts posted from the Donated Assets Account.

H31 Paragraph 3.4.2.69 of the Code sets out the items which need to be extracted from the Net Surplus or Deficit on the Provision of Services because they are to be included in the investing or financing activities lines, as follows.

a) Proceeds from short-term and long-term investments

This line comprises all income credited to the Surplus or Deficit on the Provision of Services that needs to be included within line e) of investing activities – see paragraph H25.

The amount to be removed to arrive at the cash flow for operating activities will be the net gain or loss on disposal or maturity rather than the gross proceeds.

b) Proceeds from the sale of property, plant and equipment, investment property and intangible assets

This line comprises all income credited to the Surplus or Deficit on the Provision of Services that needs to be included within line d) of investing activities – see paragraph H25.

The carrying amount of the assets sold that was written off as part of the gain/loss on disposal will already have been removed in the reconciliation at line i) in paragraph H30.

c) Any other items for which the cash effects are investing or financing activities.

This line comprises any other items for which the cash effects are investing or financing activities. This will include grants received for the financing of capital expenditure or to meet the principal repayments on borrowing, that have been recognised in the CIES.

H32 It is recommended that, where material, authorities should disclose the amounts included in paragraphs H30 and H31 above in the notes to the financial statements.

H33 The classes for investing activities included in a statement prepared under the indirect method are the same as those arrived at using the direct method – see paragraph H25.


H34 The classes for financing activities included in a statement prepared under the indirect method are the same as those arrived at using the direct method – see paragraph H26.

Additional Disclosure Requirements Applicable to Indirect and Direct Methods

H35 As the Code does not define exactly what constitutes a cash equivalent, paragraph 3.4.2.15 of the Code requires an authority to set out its interpretation in its accounting policies. Any subsequent change in the interpretation applied would be a change in accounting policy.

H36 Paragraph 3.4.2.76 of the Code requires that the components of cash and cash equivalents are disclosed. No components are specified and it will be for practitioners to determine a breakdown for their own authorities that helpfully analyses the cash holdings and the investments the authority has included in the balance.

H37 Paragraphs 3.4.2.67 and 3.4.2.71 of the Code require that cash flows from:

� interest received

� interest paid

� dividends received

� dividends paid (group accounts only)

are disclosed either separately as arising from operating activities on the face of the Cash Flow Statement or in the notes. Interest received and interest paid are classes in the breakdown of operating activities for the direct method, but will need special disclosure if the indirect method is applied. Under both methods, special disclosure will be needed for dividends received.

I NOTES TO THE FINANCIAL STATEMENTS

Introduction I1 The notes to the financial statements in the Statement of Accounts are fundamentally

important in the presentation of a true and fair view. Per paragraph 3.4.2.78 of the Code, they have three significant roles:

� presenting information about the basis of preparation of the financial statements and the specific accounting policies used

� disclosing the information required by the Code that is not presented elsewhere in the financial statements – most commonly this will entail notes breaking down lines presented on the face of the financial statements into their significant components (eg sub-classifications of Property, Plant and Equipment)

� providing information that is not provided elsewhere in the financial statements, but is relevant to an understanding of any of them – this will apply particularly to information that is material in a qualitative sense but not material enough in a quantitative sense to justify disclosure on the face of any of the statements (eg transactions with related parties).


I2 The general principles for preparing the financial statements will also apply to the preparation of the notes – see section A of this module, in particular the principles summarised in paragraph A8. Their application to the notes to the accounts is discussed in the following table (to the extent that the individual principles are relevant).

Prominence The principle of equal prominence does not apply to the notes, where it might be advantageous to spotlight the particular notes that are most relevant to an understanding of the financial statements.

Order Paragraph 3.4.2.79 of the Code requires that the notes are presented in a systematic manner and requires cross-referencing from the lines in the financial statements to the relevant notes. This suggests an order based on the following:

� generally applicable notes – accounting policies, judgements and assumptions about the future

� specific notes cross-referred to the financial statements, in the order that they appear in the financial statements

� other notes set within the specific notes where they are most relevant or placed after the specific notes.

However, practitioners are free to order the notes as they think will be most effective. For example, it may be helpful to consolidate notes on a particular subject (eg post-employment benefits) rather than have the information spread across notes to the different financial statements.

True and fair The requirement for true and fair presentation applies to the notes to the accounts. Particular care needs to be taken that incorrectly or ineffectively worded narrative notes do not have the potential to mislead readers. For instance, one of the most significant notes to the accounts is often that relating to contingent liabilities. An authority could be exposed to substantial losses dependent on future events, but a poorly worded note could downplay the level of risk and the size of the potential losses. Alternatively, the note could overstate the threat and cause concern amongst readers where the matter is relatively insubstantial.

Inappropriate accounting policies

The notes do not provide an opportunity to rectify the effects of inappropriate accounting policies, eg by disclosing material classes of transactions that the Code requires to be recognised on the face of a particular financial statement but which the authority’s accounting policies disregard. For instance, a failure to make a provision against the Surplus or Deficit on the Provision of Services cannot be rectified by the disclosure in a note that such a provision needs to be made.

Accruals All figures in the notes should be based upon accruals, except where they relate to cash flows. Materiality will have an impact on the extent and the rigour with which this principle is applied in practice.

Similar and dissimilar items

The notes should identify dissimilar items where this is necessary for a proper understanding of the purpose of the disclosure. For instance, care will be taken in the preparation of the analysis of debtors to separate categories of amounts owing that have different likelihoods of collectability.


Immaterial disclosures

Notes are not required where they would not provide any material information over and above that already provided in the financial statements. In some instances it will clearly be the case that disclosure is required. For example, most authorities will have substantial balances of debtors and it will be material to distinguish the amounts that are certain to be collected (eg payments due from government) from those where there is greater uncertainty. However, for many authorities, the balance of inventories is in itself immaterial and there would be no useful purpose in providing a note showing the breakdown of inventories into classifications.

Materiality should be considered qualitatively as well as quantitatively. It can sometimes be significant that an authority has no expenditure to disclose (eg that it has made no payments to the auditors for non-audit services that might put their independence in doubt). In other situations, it might be presumed that there will be a readership for information, even though the figures involved might be below the usual materiality levels (eg the contingent liabilities note for a high profile legal case).

Offsetting The principle that items should be presented gross and not offset are equally relevant to the notes, if not more so, as the notes will often gross up transactions and balances that the Code allows to be netted off on the face of the financial statements (eg the adjusting transactions between the accounting and financing basis in the Movement in Reserves Statement).

Comparative figures All notes should have comparative figures unless the Code clearly permits otherwise. This can result in some challenges in designing a note that includes all the required information but remains understandable. However, such complications do not provide a justification for omitting comparative figures. Whilst it will usually be most effective to provide comparative figures alongside the figures for the current year, it might be necessary on occasion to present comparative figures together in a separate table that stands alongside that for the current year.

Summary of Significant Accounting Policies I3 Paragraph 3.4.2.80 of the Code requires a summary of significant accounting policies in the

notes to the financial statements. This is to have two elements:

� Disclosure of the measurement basis (or bases) used in the preparation of the financial statements – this requires a general statement as to the convention used in the preparation of the accounts (historical cost modified by the use of fair value for particular categories of assets and liabilities) and specific disclosure of the precise measurement basis for each category of assets and liabilities where fair value is used.

� Disclosure of the other accounting policies used that are relevant to an understanding of the financial statements – practitioners will have some discretion in determining what policies need to be provided and the level of detail disclosed, but it should be noted that paragraph 2.1.2.18 of the Code states that the financial statements are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyse the information diligently, which would limit the detail required in the summary of significant accounting policies.


I4 Section D of this module explains how an authority should select its accounting policies and what to do if it needs to change them.

I5 Where any of the following items have a significant effect on the amounts recognised in the financial statements, paragraph 3.4.2.82 of the Code requires the relevant accounting policies to be included in the summary of accounting policies.

a) Accruals of expenditure and income

b) Acquired operations

c) Back pay arising from unequal pay claims

d) Business Improvement District schemes (England, Scotland and Wales)

e) Cash and cash equivalents

f) Contingent assets

g) Contingent liabilities

h) Discontinued operations

i) Employee benefits

j) Events after the reporting period

k) Prior period adjustments

l) Financial instruments

m) Foreign currency translation

n) Government grants and other contributions

o) Heritage assets

p) Intangible assets

q) Inventories and long-term contracts

r) Investment property

s) Landfill allowance schemes

t) Leases (separate policies required for operating and finance leases)

u) Non-current assets held for sale

v) Overheads

w) Service concession arrangements (PFI/PPP schemes)

x) Property, plant and equipment

y) Provisions

z) Reserves

aa) Revenue expenditure funded from capital under statute

ab) Value Added Tax

I6 Practitioners will need to add to or subtract from this list according to local circumstances. The Code does not require authorities to follow the alphabetical order listed above, but if it is anticipated that users of the accounts will refer to individual entries in the summary as required then this should be an effective basis for presentation.


Judgements Made by ManagementI7 Paragraph 3.4.2.81 of the Code requires that the judgements that management have

made in applying the authority’s accounting policies should be disclosed in the summary of significant accounting policies or otherwise in a note to the accounts. The relevant judgements are those that have the most significant effect on amounts recognised in the financial statements.

I8 Judgements made in arriving at estimates are excluded. These may, however, be relevant to the note about estimation uncertainty – see paragraphs I14 to I18.

I9 Disclosure of such critical judgements made by management in applying the authority’s accounting policies should enable users of financial statements to better understand how the accounting policies are applied and to make comparisons between authorities regarding the basis on which management make these judgements.

I10 It is also important for these disclosures to include the judgements made by management to exclude material items which could impact on providing a ‘true and fair view’; an example of such judgements would be a decision not to treat a possible future transaction as a contingent liability.

I11 These requirements have the effect of requiring authorities to justify the view they have taken on significant transactions and balances by providing an appropriate explanation of the factors that were taken into account and any assumptions made when making the judgement, together with the outcome.

I12 Examples of judgements that might be disclosed include:

� whether a lease is an operating or a finance lease

� whether contractual arrangements have the substance of a lease

� whether a public/private partnership is a service concession

� whether land and buildings owned by the authority are investment properties

� whether the substance of a relationship between the authority and another entity indicates that the entity is controlled by the authority

� whether the authority’s exposure to possible losses is to be accounted for as a provision or a contingent liability.

I13 The notes should explain the judgement made and provide justification for the view taken by the authority. The aim is to highlight significant areas of the accounts where others might have made different judgements about the accounting treatment. Authorities may also want to provide basic information that would allow an assessment of the impact of an alternative treatment.

Assumptions about the FutureI14 Paragraph 3.4.2.83 of the Code requires disclosure of the assumptions that the authority has

made about the future and other major sources of estimation uncertainty.

I15 The disclosure of estimation uncertainty is limited to those estimates that have a significant risk of resulting in a material adjustment within the next financial year. These criteria will exclude the majority of estimates that an authority might make in the Statement of


Accounts, as they require that an adjustment must itself potentially be material (rather than simply relate to a material balance) and that this potential must be at risk of crystallising before the end of the next financial year. Disclosures will therefore be restricted to assets and liabilities whose carrying amount is dependent on estimates which are in turn dependent on difficult, subjective or complex judgements for which there is a risk that correction or re-estimation with material effect in the next year might be required.

I16 Paragraph 3.4.2.84 of the Code also excludes assets and liabilities that are measured at fair value based on recently observed market prices from the disclosure requirements, even where there is significant risk that the value might change materially in the next year. The Code does not say what is meant by ‘recently observed’, authorities being left to determine for themselves the extent to which a market price noted during the financial year might have become subject to estimation uncertainty by 31 March.

I17 Estimation uncertainty disclosures deal with situations where an authority has incomplete or imperfect information which will only be enhanced as a result of future events. Examples of estimates that might be included in the note include:

� assumptions used in the calculation of depreciation

� assumptions about future events affecting provisions

� principal actuarial assumptions used at the Balance Sheet date in respect of defined benefit pension plans

� assessments of the recoverable amounts of arrears and other debtors

� fair values for property, plant and equipment that are not based on recently observed market prices

� fair values for financial assets and financial liabilities that are not based on recently observed market prices.

I18 The minimum requirement of the Code is for details of:

� the nature of the assets and liabilities affected

� their carrying amount at the end of the financial year.

However, paragraph 129 of IAS 1 Presentation of Financial Statements gives further guidance on the information that might need to be provided to meet the Code’s requirements in particular circumstances, depending on the materiality of the assets/liabilities and the degree of uncertainty attaching to them:

� the nature of the assumption or other estimation uncertainty relating to the assets or liabilities

� the sensitivity of the carrying amounts to the methods, assumptions and estimates underlying their calculation, including the reasons for the sensitivity

� the expected resolution of an uncertainty and the range of possible outcomes for the carrying amounts of the assets/liabilities within the next financial year

� an explanation of changes made to past assumptions concerning the assets/liabilities if uncertainty existing at the start of the financial year remains unresolved at the end of the year.


Where it is impracticable to disclose the extent of the possible effects of a key assumption, paragraph 131 of IAS 1 requires a disclosure for the affected assets and liabilities limited to a statement that it is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from assumptions in the current year could require a material adjustment to their carrying amount. ‘Impracticable’ is defined in paragraph 3.4.2.5 of the Code as meaning that a requirement cannot be applied after an authority has made every reasonable effort to do so.

Segment ReportingI19 Paragraph 3.4.2.44 of the Code requires that authorities analyse the financial performance

of their operations in the Comprehensive Income and Expenditure Statement using the service analysis included in the Service Reporting Code of Practice. The intention is secure consistency of reporting across all authorities.

I20 However, it may be more relevant to review financial performance according to how the authority has been managed, with information corresponding with that used by management in making decisions. Consequently, the Code adopts the provisions of IFRS 8 Operating Segments to require notes to the accounts showing income and expenditure according to the divisions and accounting policies used in the management of the authority.

I21 Paragraph 3.4.2.85 of the Code sets out the core principle for the disclosure of segmental information – that authorities should disclose information to enable users of the financial statements to evaluate the nature and financial effects of the activities in which it engages and the economic environments in which it operates. The principle makes it clear that the Code’s provisions are primarily about disclosure. They do not contain detailed rules about how segmental information is to be measured, but do require reconciliations from this information to the figures in the Comprehensive Income and Expenditure Statement.

I22 Although the disclosures will be relatively lengthy, paragraph 3.4.2.90 of the Code confirms that their preparation is not intended to be onerous. The requirement is to disclose information already used by management. The work of practitioners will thus be to:

� determine which management information is to be used – what is ‘management’ for the purposes of segmental reporting?

� determine the level of aggregation to be applied to the information – what are the segments that are to be disclosed?

� format the information to be consistent with the rest of the Statement of Accounts

� prepare the reconciliations to the information in the Comprehensive Income and Expenditure Statement (which should largely be a reversal of the process actually applied in preparing the statement from management information).

Management Information to be Used

I23 There are two stages to determining the segments to be disclosed in the note:

� identifying the operating segments of the authority – this will involve deciding who is the chief operating decision maker for the authority and using the analytical framework for reporting operational income and expenditure to them


� converting the operating segments into reportable segments by aggregating the former according to the quantitative thresholds specified in the Code.

I24 The Code does not discuss IFRS 8’s concept of operating segments, as the definition is based largely on units that earn revenues whereas local government is more often concerned with the provision of services on an uneconomic basis. The principles of paragraph 5 of IFRS 8 might be adapted as follows for local authorities, such that operating segments are components of an authority:

� that engage in operational activities from which the authority may earn revenues or which involve it distributing economic benefits or service potential through the provision of services to other entities and individuals

� that have their activities regularly reviewed by the authority’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance, and

� for which discrete financial information is available.

I25 These principles would exclude support services from being operating segments, since their primary objective is not to earn revenues or provide services to the public. However, it can practically be the case that their results are identified separately in management information, as they will be residual figures left over after overall income and expenditure has been divided into activity that meets the operating segments definition. Paragraph 3.4.2.86 of the Code therefore confirms formally that segments may include support services.

The Chief Operating Decision Maker

I26 The Code does not discuss IFRS 8’s concept of the chief operating decision maker. Although the term is suggestive of an individual, it is intended to cover the function of allocating resources to operating segments and assessing their performance. This does not mean that the group or individual has the ultimate responsibility for determining the allocation of resources (ie elected members), but that it or they have practical control over the allocation process.

I27 Paragraph 3.4.2.86 of the Code does give examples of who the chief operating decision maker might be (cabinet, board or senior directors) that suggest that it would not be appropriate to apply the definition to the full council. Non-executive members will not usually be involved in resource allocation decisions except at the highest level, providing a governance role rather than a management one.

I28 Depending on the level of operational delegation at individual authorities, the chief operating decision maker is most likely to be the cabinet or other executive group of members. However, at some authorities delegation to officers might be sufficiently deep to bring the chief executive or the senior management team into consideration.

Determining Operating Segments

I29 Once the chief operating decision maker has been decided, it might be found that they receive financial information in more than one format. For instance, income and expenditure might be analysed by service area and by ward. If this is the case, paragraph 3.4.2.86 of the Code confirms that the segments to be disclosed will be those that are most significant


in decisions to allocate resources and assessing the performance of services. In making a decision, it might be relevant to consider:

� the operational management structure – are operational managers organised by service or by ward?

� the members to whom the chief operating decision maker reports – what format is used primarily to report resourcing decisions upwards (eg to full council) for ratification?

Segments to be Disclosed

I30 Following the identification of an authority’s operating segments, the next step is to consolidate these into reporting segments. Paragraphs 3.4.2.87 and 3.4.2.88 of the Code set out the process for doing this:

� it is not necessary to report all segments – the less significant segments can be collected together in an All Other Segments line

� a segment must be reported separately where either its gross expenditure or its gross income is 10% or more of the totals included within the Net Expenditure of Continuing Operations in the Comprehensive Income and Expenditure Statement – it cannot be combined with other segments

� where a segment has less than 10% of the gross expenditure or income, the authority can choose whether to report it separately or combine it with other segments for disclosure – where segments are combined, they should have similar economic characteristics

� if the mandatory segments and the discretionary segments identified in the preceding two steps do not include at least 75% of the gross expenditure within the net expenditure of continuing operations, then additional segments or combinations of segments must be separately identified until there is 25% or less of net expenditure in the All Other Segments line.

I31 Changes in spending priorities or reorganisations might result in changes in segments across financial years, particularly segments crossing the 10% threshold. Where this is the case, the following principles should be applied:

� where a segment falls below the 10% threshold in the current year, the authority can choose to continue to report it separately if it is considered that it has continuing significance for the authority – otherwise, the comparatives can be restated to reflect that it is included in the All Other Segments line

� where new segments are disclosed, the comparative figures for the prior year should be restated to match the new format, unless exceptionally the necessary information is not available and the cost to develop it would be excessive.

Management Information to be Disclosed

Segmental Analysis

I32 Paragraph 3.4.2.89 of the Code states that authorities must disclose, for each reportable segment, an analysis of income and expenditure, based on a subjective format. The subjective format is not specified by the Code, as authorities will treat types of income and expenditure differently in their management information. However, in order to simplify the


reconciliation required by paragraph 3.4.2.92 of the Code, the format specified therein is recommended (see paragraph I33).

I33 The information should be disclosed in the format in which it is presented to the chief operating decision maker for the purposes of resource allocation decisions and assessing the performance of services: ie applying the accounting policies used for internal management reporting rather than those used in the preparation of the Statement of Accounts.

I34 The Code confirms that this means the segmental analysis may include debits and credits that are not made to the Comprehensive Income and Expenditure Statement (such as charges to services for the financing of capital investment and employer’s pensions contributions) and exclude items that are included in the statement (such as depreciation and the current service cost in relation to pensions). Amounts may also be common to both the segmental analysis and the statement but accounted for in different ways. This might apply particularly to support services, which are fully absorbed using total costing principles in the statement but may be retained in separate cost centres (eg Chief Executive’s Department) in the analysis.

Reconciliation of Segmental Analysis to the Comprehensive Income and Expenditure Statement

I35 These potentially significant differences in the accounting policies are recognised by a requirement in the Code for a reconciliation between the segmental analysis and the net expenditure of continuing services in the Comprehensive Income and Expenditure Statement. Paragraph 3.4.2.91 of the Code recognises that there can be no generic format for the reconciliation, as each authority will have applied different policies in preparing its segmental information. However, it is expected that the reconciliation will contain at least three items:

� additional segments not included in the analysis (if any)

� amounts not included in the analysis but included in the Comprehensive Income and Expenditure Statement

� amounts included in the analysis but not included in the Comprehensive Income and Expenditure Statement.


Reconciliation of Segmental Analysis to Subjective Analysis of Total Expenditure

I36 Paragraph 3.4.2.92 of the Code also requires a reconciliation between the segmental analysis and a subjective analysis of the Surplus or Deficit on the Provision of Services. The subjective analysis is required to have the following minimum lines.

Income

a) Fees, charges and other service income

b) Surplus or deficit on associates and joint ventures (group accounts only)

c) Interest and investment income

d) Income from council tax

e) Government grants and contributions

Expenditure

f) Employee expenses

g) Other service expenses

h) Support service recharges

i) Depreciation, amortisation and impairment

j) Interest payments

k) Precepts and levies

l) Payments to the housing capital receipts pool

m) Gain or loss on disposal of non-current assets

n) Surplus or Deficit on the Provision of Services

I37 Paragraph 3.4.2.93 of the Code acknowledges that the precise format of the reconciliation will depend on the construction of the segmental analysis. However, it is expected that the following items will need to be included:

� additional segments not included in the analysis (if any)

� amounts not included in the analysis but included in the Comprehensive Income and Expenditure Statement

� amounts included in the analysis but not included in the Comprehensive Income and Expenditure Statement

� allocation of support service recharges

� allocation of lines in the segmental analysis that include items from more than one line of the analysis of total income and expenditure

� amounts reported below the Net Expenditure of Continuing Operations in the Comprehensive Income and Expenditure Statement.

Segmental Analysis of Assets and Liabilities

I38 Paragraph 3.4.2.95 of the Code requires an analysis of segment assets and liabilities, but only where amounts are regularly reported internally by segment as part of management’s decision making processes for resource allocation.


I39 It is not necessary for complete balance sheets to be produced. Where internal reporting only covers a range of assets and/or liabilities (such as a debtors report), then a segmental analysis of these assets/liabilities is required, provided that the particular figures cover all reportable segments.

I40 The analysis should be on the same basis as that used to report internally, applying accounting policies used for management information rather than those required for the financial statements.

I41 Where a segmental analysis of assets and/or liabilities is provided, a reconciliation is required to the total assets and liabilities included in the Balance Sheet.

Other Analyses by Segment

I42 Although IAS 7 and other standards require analyses of other information by segment (eg information about products and services, geographical areas, major customers, etc), these requirements have not been adopted by the Code. Any disclosure that an authority wishes to make about its segments over and above what is set out in section 3.4 of the Code will be voluntary.

Contextual Information

I43 The Code does not specify any narrative disclosures in relation to the segmental analysis, but it will be necessary to provide some contextual information in relation to the figures. The following matters (adapted from the requirements of IFRS 8) may be relevant:

� how reportable segments have been identified

� how income and expenditure for segments have been measured

� summary of the differences between the accounting policies for the segmental analysis and for the financial statements.

Disclosure RequirementsI44 Disclosure requirements for transactions and balances relating to particular areas of the

financial statements are largely specified in the relevant sections of the Code. However, some specific disclosure requirements are included in section 3.4.4 of the Code. Subject to the information being material (per paragraph 3.4.2.26) in either a quantitative or qualitative sense, the notes to the accounts set out in the following paragraphs are required.

Acquired and Discontinued Operations (1)

I45 This requirement is for the disclosure of:

� the nature of any acquired or discontinued operations, and

� details of any outstanding liabilities in respect of discontinued operations.

I46 The note will rarely need to be prepared, and will usually only be made necessary by local government reorganisation.

I47 The implications of the requirement are discussed:

� in paragraphs E24 to E32 of Module 2 in relation to acquired operations


� in paragraphs N34 and N35 of Module 4 in relation to discontinued operations.

Trading Operations (2)

I48 The requirement is for the disclosure of:

� the nature, turnover, and surpluses/deficits of any significant trading operation, and

� for Scottish authorities, the cumulative surplus or deficit for the current year and two preceding financial years in accordance with the requirements of the Local Government in Scotland Act 2003.

I49 Section 10 of the Local Government in Scotland Act 2003 introduced a specific performance requirement for trading operations – each significant operation must be conducted so that revenue is not less than expenditure on a three-year rolling basis. Detailed guidance for Scottish authorities is provided in the 2003 CIPFA Directors of Finance Section and LASAAC publication A Best Value Approach to Trading Accounts – A Guidance Note for Local Authority Practitioners.

I50 For authorities in England and Wales, guidance is provided in 2.31 to 2.39 of the Service Reporting Code of Practice 2014/15 (SeRCOP), summarised in the following paragraphs.

I51 The Code’s requirements for trading accounts are not based on any accounting standard. They instead reflect considerations of stewardship specific to local authorities. Where an authority is trading and taking commercial risks, then there should be assurance that the authority is not exposing itself unreasonably to loss. For example, it is not expected that an authority will invest in plant, labour, inventories, etc for trading activity without there being a strong probability that it will be able to generate income to cover this investment. The note to the accounts encourages authorities to disclose the circumstances in which the authority is exposed to commercial loss and the financial consequences for the year of account.

I52 Trading operations are defined in paragraph 2.32 of SeRCOP as services provided to users on a basis other than a straightforward recharge of cost, such as a quoted price or a schedule of rates. Disclosure in the Statement of Accounts then needs to be considered for those provided in a competitive environment. A competitive environment is one in which the user has discretion over whether to procure the service from the in-house provider either as part of a periodic tendering procedure or on a continuous basis. A service where the user may negotiate only over volume or quality, but has never had the opportunity to exercise choice on where to procure, is not provided in a competitive environment for performance reporting purposes.

Trading Operations to be Included in the Disclosure

I53 Paragraph 2.33 of SeRCOP 2014/15 sets out the categories of trading operations that authorities should consider detailing in the note:

a) Trading services or undertakings with the public or with other third parties. These include, inter alia, catering undertakings, markets, trade refuse collection and industrial units.

b) External trading organisations (ExTOs) which have won contracts from other public bodies, for example under the Local Authorities (Goods & Services) Act 1970.


c) Work carried out by internal trading organisations (InTOs) arising from voluntary competitive tendering (VCT) exercises.

d) Support services provided in a free internal market, ie to schools or to other budget holders who have been given freedom to buy externally if they wish.

Support services are excluded from consideration where they are provided in a limited internal market, eg where budget holders are free to decide the quantity and type of the work to be done on the basis of the prices quoted to them, but not to buy externally.

I54 Authorities are free to use their own discretion to determine which trading operations should be disclosed individually, which can be consolidated into summary figures and which can be omitted altogether. The overall objective is to present a fair summary to readers of the extent to which the authority is exposed to commercial risk and has achieved its trading objectives (or otherwise). For example, an authority might decide that it should identify individually all trading operations with a turnover above a certain figure, but also disclose smaller units that have made losses above a relatively low threshold.

I55 Authorities have to decide which trading accounts are significant taking into account their results for the year, before any consolidation or reapportionment of year-end balances. The overriding principle should be whether there is a need to demonstrate competitiveness. This might be assessed on the basis of turnover or magnitude of surplus/deficit for the year. In addition, authorities should consider the qualitative aspect of materiality – for example, there may be greater interest among readers in certain operations that have previously had a high public profile. Key considerations will therefore be whether making the information public would result in:

� better informed consultation with stakeholders, likely to result in tangible improvements in trading operations

� effective comparison of trading performance year on year and between authorities and the private sector, where provision of information about trends, peers and competitors would enhance stakeholder involvement

� promotion of challenge to what the authority does and how it does it in substantial areas of policy

� demonstration that the authority has a competitive approach to key areas of service delivery.


Format for the Disclosure

I56 Per paragraph 2.38 of SeRCOP, the summary disclosure should include the following.

a) The nature of the trading operation, ie the service that is provided and the main customers

Readers should be able to understand what the authority is doing and what it is seeking to achieve, rather than just be presented with a simple heading such as ‘building cleansing’ or ‘county trading’. Relevant information will depend on precisely what the authority is doing but might include:

� a description of the activities carried out – this could also include the volume of activity, key outputs, the value of these outputs to the community and any relevant performance indicators (either local or national)

� the main customers

� the basis on which work is won or commissioned

� the policy objectives the authority is seeking to achieve through the activity

� the extent to which the activity is carried out on a commercial basis and the risks involved.

b) Turnover Where there are substantial amounts of external and internal income, these might usefully be separated; an indication of the outputs represented by the turnover might also provide useful context.

c) Surplus/deficit Disclosure of the surplus/deficit for the year should be regarded as the minimum requirement for information on financial performance. Where the trading is external, then surplus/deficit might equate to profit/loss, as the income will be real income for the authority. Where income is from internal recharges to the budgets of the authority’s services, then the theory of surpluses and deficits being strictly linked to the performance of the trading operation relationship does not necessarily hold, ie all surpluses demonstrate good performance and all deficits do not. Surpluses and deficits may arise from an error in a pricing decision in a contract or a change of accounting policy, or may be a policy decision of the authority. Therefore, surpluses and deficits will need to be put in the context of the trading operation’s targets: for instance, a local authority may have decided to generate a surplus to cover costs not included in the account (eg cost of capital), to support other spending priorities (eg investment and replacement decisions), to break even, or to run a subsidised activity at a loss, and the consequences of missing a target in either direction may need to be explained.

d) Any reapportionment of surplus/deficit

This information is required as it would otherwise be unclear how surpluses/deficits had been taken into account when aggregating the authority’s overall position in the Other Operating Expenditure line of the Comprehensive Income and Expenditure Statement.

e) Any details putting financial performance in a context useful to the reader

Especially important is the performance framework under which the activity is being carried out (see surplus/deficit above). Other useful contextual information might be:

� information about previous year forecasts and actuals and projected performance for next year

� explanation where previous year actual outturn is significantly different from the disclosed forecast performance measures

� information on future prospects.

In addition, where a trading operation has sustained a deficit, details should be included of remedial action and the results of such action.


I57 The summary disclosure note should be compiled on the basis of proper accounting practice using the total cost approach in SeRCOP.

I58 Some authorities have made year-end credits to trading operations to compensate for unbudgeted increases in cost. One of the key criteria for identifying a trading operation is that the service is charged for on a basis other than the straight recharge of cost. Internal recharges at the end of the year are therefore inconsistent with the concept of trading and are not acceptable as they do not represent proper accounting practice. Credits to trading accounts should be in respect of charges for services provided and there should not be credits in respect of year-end internal recharges of cost. Any credits for cost recharges might be disregarded in determining whether the financial objective has been achieved.

Consolidation of Trading Accounts into the Comprehensive Income and Expenditure Statement

I59 It is important that the total cost of services is reported comprehensively in all material respects. Costs therefore need to be properly consolidated and the effect of internal recharges neutralised in determining what it really cost to provide a particular service. The proper treatment for balances on trading accounts is as follows:

� some trading accounts will be an integral part of the total cost of particular services and should be consolidated into the cost of that service (eg leisure management)

� where a support service trading account has a year-end balance attributable to under- or over-recovery of internal recharges for revenue activities, then the balance should be reapportioned to services if doing so would have a material effect on total cost figures

� some trading account activity will relate to capital works and should not be reflected in revenue accounts (particular care might need to be taken with significant surpluses that need to be reapportioned)

� where trading activity is with other parties and does not relate to the provision of the authority’s own services, all transactions should be excluded from expenditure on continuing operations represented by the Expenditure of Continuing Operations sub-total.

I60 This means that any balance of net expenditure on the disclosures in the trading accounts note will not necessarily reconcile to the figure for the surplus or deficit of trading undertakings that will need to be included in the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement. This line is a reconciling entry to bring the Expenditure of Continuing Operations around to the Surplus or Deficit on the Provision of Services for the authority as a whole. It will thus only contain trading account balances arising from external trading activity not covered by the Service Expenditure Analysis or balances attributable to under- or over-recovery of internal recharges where reapportionment would not have had a material effect on total costs:

� some trading accounts will have been integrated into the total cost of particular services and will not need further consolidating adjustments

� any material balances for support to services will have been reapportioned, but the trading accounts may be disclosed in this note before reapportionment

� elements of trading activity are required to be disclosed separately – eg agency work.


I61 For example, a leisure management trading account might make a deficit of £0.5m, and this is likely to require disclosure as significant in the note to the accounts. However, the balance will not be part of the Financing and Investment Income and Expenditure line, because the account will be absorbed by the appropriate service line, eg Cultural and Related Services.

ILLUSTRATION: CONSOLIDATION OF A TRADING ACCOUNTAn authority runs its cleansing operations under a single manager, who is required to meet the costs of activities by charging customers (internal and external) for services provided. At the end of the financial year, the trading unit has the following financial results:

Expenditure £000s

Charges £000s

Surplus/(Deficit) £000s

Street cleansing 1,002 979 (23)

Building cleaning for Children’s and Education Services

523 620 97

Cleansing services for neighbouring authority

1,232 1,308 76

Total 2,757 2,907 150

The trading account for cleansing operations would take the following form when disclosed separately in the note to the accounts bringing together all aspects of its performance:

£000s

Turnover 2,907

Expenditure (2,757)

Surplus for the year 150

However, each of the elements of the operations will require separate treatment when incorporating the activity into the Surplus or Deficit on the Provision of Services in the Comprehensive Income and Expenditure Statement. Ignoring implications of materiality for this example, the treatments would be:

Street cleansing Street cleansing is a division of service of Environmental and Regulatory Services. The actual costs of £1,002,000 should therefore be reflected in the total cost of that service. If the service has been debited with recharges of £979,000, then debiting it with the deficit of £23,000 would bring the total debit up to the actual cost.

Building cleaning for Children’s and Education Services

The surplus of £97,000 on the trading account shows that Children’s and Education Services have borne a greater cost for the cleansing services provided (when comparing agreed recharges to actual cost). To avoid overstating the total cost of Children’s and Education Services, the surplus should be repatriated to the service – an additional credit of £97,000 would reduce the reported cost of cleansing support to £523,000.


Cleansing services for neighbouring authority

By definition, support services provided to other parties (such as the neighbouring authority) should not be regarded as part of an authority’s Expenditure of Continuing Operations. Neither the expenditure nor the income for this activity should be allocated or apportioned to services. Instead, the balance of £76,000 surplus will be consolidated into the Comprehensive Income and Expenditure Statement by including it as a Surplus or Deficit on Trading Undertakings item in the Financing and Investment Income and Expenditure line.

This disaggregation of the trading account is solely for the purposes of presenting the Comprehensive Income and Expenditure Statement. It does not challenge the integrity of trading accounts when these are presented in isolation or used for management purposes.

I62 Special consideration needs to be given to the statutory HRA in England and Wales. It is the view of the Department for Communities and Local Government, the National Assembly for Wales and the Audit Commission that material balances of internal trading operations providing services to the HRA should be repatriated to or from the HRA in line with the general requirements of SeRCOP.

Charges for the Cost of Capital

I63 The prohibition from charging support services with a charge for the cost of capital means that any trading accounts presented in the Statement of Accounts would exclude notional interest debits in order to comply with proper practices. However, where a trading account has a real practical effect (such as providing a basis for procurement decisions or in demonstrating performance against the statutory break-even requirement in Scotland), there may be a specific requirement which would override proper practices.

I64 Even where trading accounts are prepared without real practical effect (eg as memoranda accounts for the Statement of Accounts in England and Wales), much of the income credited to the accounts (and to be charged in the future) is likely to have been negotiated on the basis of full recovery of the real cost of performing work. Where there is a clear imbalance between the basis for accounting for expenditure in the trading account and the calculation of prices and recharges for work carried out or services rendered, the financial performance of the trading account needs to be put in a proper context.

I65 An example of the contextual disclosure that might be needed is set out below.

ILLUSTRATION: CONTEXTUAL NOTE ABOUT NOTIONAL INTERESTIn order to satisfy the requirements of competition law, recharges for internal work done by the trading operation following competition with the private sector have been priced to include a cost of capital recovery. The Code does not permit charges for cost of capital to be debited to trading accounts, so that the recharges that have been made result in a surplus for the accounts. As a result, the accounts for refuse collection show a surplus of £650,000 that would be reduced to £204,000 if cost of capital charges had been made, and those for building cleaning show a surplus of £201,000 that would be reduced to £3,000.

Agency Income and Expenditure (3)

I66 The requirement is for the disclosure of the nature and amount of any significant agency income and expenditure.


I67 Paragraph 2.6.2.1 of the Code states that an authority is acting as an agent in situations or circumstances ‘where the authority is acting as an intermediary’. This will exclude situations where the authority is providing goods and services to another body – it must be providing goods and/or services to a third party on behalf of the other body.

I68 Examples common to all authorities is the collection of VAT as an agent of Her Majesty’s Revenue and Customs and the payment of income tax on behalf of employees. However, as these do not involve significant income or expenditure for an authority (apart possibly from costs of administration), these relationships are unlikely to require disclosure. More relevant examples might be the collection of refuse on behalf of a neighbouring authority or the provision of exchequer services to another public body.

I69 Where an authority hosts a joint committee on behalf of other authorities, relevant expenditure may be incurred where the operation of the joint committee involves the host interacting with the public on behalf of the other authorities.

I70 Arrangements will be excluded where they are providing services directly to a second party, such as maintenance work to another authority’s property.

I71 As the Code only requires the disclosure of income and expenditure (ie amounts debited and credited to the Comprehensive Income and Expenditure Statement), many of the cash flows involved in an agency arrangement will be excluded. For instance, where an authority is providing a payroll service, the note must include the expenditure incurred by the authority in providing the service and the management fee it receives in return, but not the salaries actually paid. In order to give a context to the agency arrangement, authorities might wish to disclose this information voluntarily.

Pooled Budgets for Health and Social Care (4)

I72 The requirement is for sufficient information on any partnership schemes under section 75 of the National Health Service Act 2006, under the Community Care and Health (Scotland) Act 2002 and under s33 of the National Health Service (Wales) Act 2006 to allow for the understanding of the authority’s financial affairs.2,3 As a minimum this information should include the purpose of the partnership, the identities of partner bodies, the gross income and expenditure of the partnership and the authority’s contribution.

I73 Section 75 of the 2006 Act (which replaces section 31 of the 1999 Act) and the 2002 Act enable the establishment of joint working arrangements between NHS bodies and local authorities. Pooled funds enable bodies to work collaboratively to address specific local health issues. A key feature of the pool is that the use of resources contributed to the pool should be dictated by the need of clients who meet the criteria established for the pool, rather than the respective contributions by the partners. Thus, it is to be expected that health service resources could be used to deliver local authority services and vice versa.

2. Note that similar legislation, section 33 of The National Health Service (Wales) Act 2006, exists in Wales. Local authorities in Wales may wish to include a similar disclosure note to that required by English and Scottish local authorities.

3. Note that this disclosure is separate from the requirements of SSI 2002/533 to present an audited Memorandum Account of the fund established under section 15(1)(c) of the Community Care and Health (Scotland) Act 2002 (see statutory disclosure requirements).


I74 Pooled funds are not legal entities. The partners in the pool will nominate one partner to be the host to the pool. That host has responsibility for the administration of the pool. The host is required to produce a memorandum account of the financial activity of the pool (which used to be subject to external audit certification until the requirement was discontinued). The obligation for NHS partners is that the memorandum account is included in their annual financial statements as a note to the accounts.

I75 The Code recognises that pooled budget schemes are extremely diverse in both size and management arrangements. In order to allow for that diversity, the Code does not require authorities to include the full memorandum account in the Statement of Accounts. However, where disclosure of involvement in one or more schemes is required for a proper understanding of the authority’s accounts, details should be disclosed at the authority’s discretion. Contributions should be attributed to the appropriate service, treating the pooled budget as a jointly controlled operation.

I76 The minimum information expected by the Code applies equally to budgets which are hosted by either the authority or its partners. The authority’s contribution to the budget should be calculated on an attributional basis, so that if the authority has paid contributions to the pooled budget that have resulted in a deficit or a surplus, the authority’s expenditure for the year will be adjusted to reflect any commitment to make good a deficit or any right to a reimbursement of a surplus.

Members’ Allowances (5)

I77 Authorities are required to disclose the totals of members’ allowances (and expenses) paid in the year. In Scotland all elements of members’ remuneration and reimbursement of actual expenditure should be disclosed under the heads of salaries, allowances and expenses and where appropriate in accordance with the statutory requirements of the Remuneration Report (see paragraphs I145 to I152). Authorities in England and Wales might consider whether it would be helpful to provide the wider disclosures in order to give a full picture of the amounts received by members.

I78 Payments to members are made under different statutory provisions across the UK:

� in England, the Local Authorities (Members’ Allowances) (England) Regulations 2003 (the members’ allowances regulations) provide for the circumstances in which allowances are payable to members and to the maximum amounts payable in respect of certain allowances

� the equivalent regulations in Wales are the Local Authorities (Allowances for Members of County and County Borough Councils and National Parks Authorities) (Wales) Regulations 2002

� in Scotland, payments of salaries, allowances and expenses are made under the Local Governance (Scotland) Act 2004 (Remuneration) Regulations 2007, the Local Government (Allowances and Expenses) (Scotland) Regulations 2007 and the Local Governance (Scotland) Act 2004 (Allowances and Expenses) Regulations 2007.

I79 The England and Wales regulations have a requirement for authorities to make public their schemes for members’ allowances and to disclose annually amounts paid to each member under such schemes. In Scotland, authorities are required to publish information on


councillors’ salaries, allowances and expenses in respect of the previous financial year in a standard format on their websites by 1 June each year.

I80 It is not specified within the members’ allowances regulations how an authority should make arrangements for publication. It is not, however, a statutory requirement to include any such disclosure within the Statement of Accounts (however, please note the statutory requirements of the Remuneration Report in Scotland; see paragraphs I145 to I152).

Officers’ Remuneration (including exit packages) (6)

I81 See paragraphs I111 to I165 for further discussion of officers’ remuneration.

Fees Payable to Auditors (7)

I82 The requirement is for disclosure of the following amounts for the year:

England and Wales

a) Fees payable to auditors appointed by the Audit Commission or the Auditor General for Wales with regard to external audit services carried out by the appointed auditor under the Audit Commission’s Code of Audit Practice or the Auditor General for Wales’ Code of Audit and Inspection Practice in accordance with s5 of the Audit Commission Act 1998 or s16 of the Public Audit (Wales) Act 2004.

b) Fees payable to auditors appointed by the Audit Commission or the Auditor General for Wales in respect of statutory inspection under s10 of the Local Government Act 1999.

c) Fees payable to auditors appointed by the Audit Commission or the Auditor General for Wales for the certification of grant claims and returns by the appointed auditor under s28 of the Audit Commission Act 1998 or s2 of the Public Audit (Wales) Act 2004.

Scotland

d) Fees payable to Audit Scotland in respect of external audit services undertaken in accordance with the Code of Audit Practice.

Northern Ireland

e) The amount payable to the Comptroller and Auditor General for Northern Ireland in respect of external audit services.

All Territories

f) Fees payable in respect of any other services provided by the appointed auditor over and above the duties described in notes 7 a) to e) above.

I83 The Code’s requirement to disclose audit costs is in line with other parts of the public services in disclosing the amounts that an authority has paid to auditors for work carried out in performing statutory functions and in providing additional services, such as tax advice. The intention is that the note will demonstrate that the objectivity of the auditor is not compromised by fees for other work being significant in relation to audit costs. However, in England and Wales, the position is complicated by inspection fees, which will not normally be


payable to the external auditor but are an important element of the overall costs of the audit regime.

I84 The audit costs note must distinguish the costs of statutory external audit services from other services provided by the external auditor. In Scotland, the amount that should be disclosed in respect of external audit services is the audit fee for the year agreed with the auditor locally plus the centrally notified fixed charge element for the year. In Northern Ireland, authorities should record the amount payable to the Comptroller and Auditor General for Northern Ireland for external audit services by local government auditors.

I85 In England and Wales, the note must also analyse the amounts paid to the Audit Commission/Wales Audit Office between those relating to the audit of the accounts, those relating to the certification of grant claims, and those in respect of statutory inspection.

I86 The sums that must be disclosed are those payable to the audit body or to the appointed auditor for the year, and will usually be interpreted to require:

� A figure for fees for audit and inspection work carried out relating to the year of account (which will require some estimation where the work has not been completed when the accounts are finalised – eg in respect of grant claims) – eg the figure for the 20XX/YY note will comprise the cost of audit work carried out or to be carried out in relation to the 20XX/YY Statement of Accounts and grant claims.

� A figure for other work based on the work carried out during the year of account, eg the figure for the 20XX/YY note will comprise amounts payable for work performed in the 20XX/YY financial year.

I87 Experience from local government and other parts of the public services suggests the following would be good practice in preparing the note:

� Authorities should make plans to discuss the preparation of this note with their appointed auditors in order to agree what fees were payable for or during the year and the split of fees between the categories required by the note. It might be the case that neither party has comprehensive information about activity in the year and will need to get additional information from the relevant audit body.

� The statutory references in the Code make it clear what costs need to be aggregated and disclosed and there should not be much debate about whether a cost is to be included or excluded from the note. Again, auditors will be able to advise authorities as to how the work that they and the inspectors do fits into the Code categorisation.

� Where no other services have been provided, it will be good practice to make a nil return in the note, rather than omit the line from the analysis, or add a narrative note explaining that no other services have been provided.

� The Code does not require the disclosure of the nature of the services that have been provided that would fall into the ‘other’ category, but authorities may consider that it would be fair to do so, perhaps in demonstrating that the auditor was an appropriate contractor for the work.

� Similarly, where fees are disclosed under the ‘other’ heading, it may be fair to provide a context for these disclosures by providing information about fees of a similar nature paid to other organisations.


Local Taxation in Wales (8)

I88 In Wales, the following information is to be disclosed to supplement the information on local taxation included in the Comprehensive Income and Expenditure Statement:

a) The total non-domestic rateable value at the year-end and the national non-domestic rate multiplier for the year.

b) The calculation of the council tax base, ie the number of chargeable dwellings in each valuation band (adjusted for dwellings where discounts apply) converted to an equivalent number of band D dwellings.

c) The name of each authority which made a significant precept or demand on the account and the amount included for each authority.

Domestic and Non-domestic Rates in Northern Ireland (9)

I89 The requirement is for the disclosure of the basis for the authority’s rates income, in the form of the applicable rates in the pound for domestic and non-domestic rates.

Amounts Shown in the Movement in Reserves Statement (10)

I90 The requirement is for a breakdown of the amount shown as the adjustment between accounting basis and funding basis under regulations to be debited or credited to the General Fund and Housing Revenue Account for the year and the transfers to/from reserves.

I91 This requirement reaffirms the provisions in the Code’s section on the Movement on Reserves Statement – see paragraphs E8 to E10.

Nature and Amount of Trust Funds (11)

I92 Many local authorities act either in their own right or with others as the trustees of various funds. In turn, these funds may have been established either for charitable or non-charitable purposes. The Code sets out the disclosure required as follows:

Details of the nature and amount of trust funds where the authority acts as the sole trustee. For other trust funds and other third party funds administered by the authority, a statement providing an indication of the overall nature and amounts administered by the authority. Where land or non-financial assets are managed, occupied or held by the local authority which are impressed with charitable trusts, the nature of those holdings.

(See paragraph 3.4.4.1(11) of the Code.)

I93 The overall intention of this disclosure is to demonstrate the authority’s stewardship and trustee responsibilities. Since those responsibilities are more onerous where the authority acts alone, in this circumstance the Code calls for further disclosure. When accounting for and reporting trust funds, local authorities should ensure that they meet the requirements of


the relevant charities legislation and where appropriate, the Charities SORP. Authorities are therefore recommended to take appropriate advice on their reporting responsibilities under the relevant charities legislation. Sources of information are likely to include the Charity Commission, the Office of the Scottish Charity Regulator and the Charity Commission for Northern Ireland websites (this list is not intended to be exhaustive).

I94 The Code does not prescribe in detail the information to be provided. However, a reasonable interpretation of the phrase ‘nature and amount of trust funds’ might include:

� a description of the fund, setting out its corporate status (if relevant)

� the purpose of each fund

� the value of the underlying assets

� the extent of any liabilities

� an indication of gross income and expenditure.

I95 Particular features of trust accounts should also be considered to determine whether they are likely to be significant to the authority as a whole. For example, material contingent liabilities falling upon the trust may require disclosure to enable the user of the authority’s accounts to obtain a proper appreciation of the underlying situation.

I96 With regard to funds that do not have trust status, the Code is not prescriptive about the amount of information required, calling only for a description of the nature of significant funds and an indication of the amounts involved. In many circumstances, it may prove sufficient to quote the capital value of the fund, although where substantial, further information including an indication of the gross income and expenditure involved could also be provided. Where land or non-financial assets are managed, occupied or held by the local authority, the authority should present the nature of those holdings including appropriate indication of the value of the holdings and the nature of the authority’s responsibilities under any agreement on holdings of assets.


ILLUSTRATION: TRUST FUNDSThe council acts a custodian trustee for two trust funds, and as one of several trustees for a further 32 funds. As a custodian trustee the authority holds the property but takes no decisions on its use. In neither case do the funds represent the assets of the council and therefore they have not been included in the Balance Sheet.

Funds for which Moshire Borough Council acts as custodian trustee:

20X1/X2 Income Expenditure Assets Liabilities

£000 £000 £000 £000

Moshire Community Halls

Established by the authority in 19XX to develop youth centres for children’s activities

2,147 1,916 3,748 897

Queen Victoria’s Theatre 140 128 1,161 86

Created in 1820 to support the amateur dramatic societies in the area

Total 2,287 2,044 4,909 983


£000 £000 £000 £000

Moshire Community Halls


2,130 2,008 3,706 897

Queen Victoria’s Theatre 100 130 1,161 86

Created in 1820 to support the amateur dramatic societies in the area

Total 2,230 2,138 4,867 983

As holder of the property for Moshire Community Halls Trust, the authority has received a claim for £600,000 resulting from alleged cost overruns arising from construction work. No provision has been made for this claim which is strongly refuted.


Other Funds

20X0/X1 20X1/X2

Capital Value of Fund Capital Value of Fund

£000 £000

Green Fund – purchase of library books promoting green issues

46 45

Orange Fund – aid to people with learning disabilities

38 35

Others 126 120

210 200

(Note: where the information in the trust fund disclosure note has not been produced under International Financial Reporting Standards, in accordance with the Code, a commentary to the note should be included setting out the basis of preparation and whether this has any impact on the financial information presented in the note.)

Components of Cash and Cash Equivalents (12)

I97 The requirement to provide an analysis of the components of cash and cash equivalents reaffirms the provisions in the Code’s section on the Cash Flow Statement – see paragraph H35 of this module.

Statutory Disclosure Requirements

I98 Paragraph 3.4.5.1 of the Code requires the following statutory disclosures to be made:

Officers’ Remuneration (1)

I99 See paragraphs I111 to I144 for further discussion of officers’ remuneration.

Schemes under the Transport Act (2)

I100 The requirement is for the disclosure of a brief explanation of the nature of any scheme under the Transport Act 2000 or Transport (Scotland) Act 2001, including the gross income and expenditure of the scheme, and the net proceeds of the scheme (including for joint schemes the apportionment of such proceeds).

I101 The note is intended to cover the responsibility that authorities have under Schedule 12 of the 2000 Act or Schedule 1 of the 2001 Act to include in the Statement of Accounts an account in relation to each road-charging scheme and (in England and Wales) workplace levies. It is not intended to cover any other expenditure under the Acts, such as that relating to bus schemes.

I102 As the requirement to record income and expenditure comes from statute and is partly concerned with controlling the application of any surpluses generated, then it is ultimately the responsibility of authorities to make their own interpretation of the accounting policies applied to these ring-fenced accounts. Particular care will need to be taken in including


costs relating to the use of property, plant and equipment and to post-employment benefits. Where the policies applied to this note are different from those adopted in the rest of the Statement of Accounts, the differences may need to be summarised in the note.

Dedicated Schools Grant (England) (3)

I103 The requirement is for a disclosure that demonstrates whether the Dedicated Schools Grant (made under section 14 of the Education Act 2002) has been deployed in accordance with regulations made under sections 45A, 45AA, 47, 47ZA, 47A, 48, 49 and 138(7) of, and paragraph 2B of Schedule 14 to, the School Standards Framework Act 1998, and section 24(3) of the Education Act 2002.

I104 School funding for local authorities in England is provided by a ring-fenced grant called the Dedicated Schools Grant (DSG), rather than as part of the Revenue Support Grant settlement. The Accounts and Audit (England) Regulations 2011 require a note to the accounts that confirms that DSG has been deployed in accordance with the statutory provisions quoted in the Code.

I105 The terms on which DSG is payable are set out in Guidance for Local Authorities on the Operation of the Grant 2014/15 issued by the Department for Education in February 2014. The School and Early Years Finance (England) Regulations 2012, which require authorities to set the Schools Budget, determine the amount of the Schools Budget to be applied to central expenditure and divide the Individual Schools Budget between schools, are complicated. However, it is relatively straightforward to meet the accounting requirements for the grant in a way that will be sufficient to:

� allow further exploration of the authority’s performance of its statutory duties by interested users of the accounts

� provide base material for external audit work on the deployment of the grant in accordance with the regulations.

I106 The conditions of grant set by the DfE provide that:

� DSG can only be used to support the Schools Budget.

� For DSG purposes, grant allocated to the Individual Schools Budget (ISB) is taken to have been spent as soon as it is deployed – ie passed to schools’ budget shares. There is no requirement to track DSG through the ISB to its use by individual schools, and changes in balances held by schools are not to be recorded in this note.

� Paragraphs 8 and 11 of the 2014/15 operational guidance provides details of DSG payments.

� The regulations no longer provide for formal changes to the Schools Budget during the year, or redetermination of budget shares except in specific prescribed situations. Where the DSG changes, the authority (after consulting the schools forum) will need to decide how to deal with this change in terms of altering early years funding or central budgets or carrying forward additional grant or deficit to the following year.

� The final DSG for 2014/15 before the academy recoupment figure includes an estimate of the early years block. This figure is derived from the 2013/14 data. The final allocation for the 2014/15 early years block will be made in May 2015 using the January 2015 census


figures and any adjustments to be treated as an ‘in year adjustment’ for 2014/15. Include this as a note in the 2014/15 NTA.

� If an authority’s actual spend on central expenditure or the ISB is greater than its central expenditure or ISB budgets, ie there is an overspend, the authority can decide:

– to fund all the overspend from its general resources in the year in question

– to fund part of the overspend from its general resources in the year in question and to carry forward part to the Schools Budget in the next or subsequent year

– not to fund any of the overspend from its general resources in the year in question and to carry forward all the overspend to the Schools Budget in the next or subsequent year.

� Where an authority takes the decision to carry all or some of the overspend forward, this becomes a first call on the next year’s Schools Budget. The schools forum will need to approve any such charge and also the use of funding from the 2014/15 Schools Budget for any overspend on central expenditure brought forward from 2013/14.

� If an authority’s actual spend on central expenditure is less than its central expenditure budget, the underspend must be carried forward to support the Schools Budget in future years including any money that is moved into earmarked reserves.

� In relation to the treatment of Copyright Licensing Agency (CLA) licences* and reimbursement of VAT, authorities are required to show the DSG allocation before the deduction of CLA licences and treat gross expenditure on these licences as central expenditure per regulations. (VAT reimbursement will be shown as income in the accounts.)

* From April 2013, the Department for Education manages a national CLA Schools Licence for all state-maintained schools in England. Schools need this licence in order to copy material from books, magazines and websites legally. In addition, the deal will also include a new licence from the Music Publishers Association to cover the copying of items such as printed sheet music.

I107 The demonstration that an authority needs to provide is therefore that:

� the Schools Budget (net of post-16 income from the Education Funding Agency outside the DSG) is equal to or greater than DSG payable for the year (taking into account any grant (surplus or deficit) brought forward from the previous year)

� an appropriate treatment has been applied to differences between forecast and finalised grant entitlements (in line with the fourth and fifth bullet points in paragraph I106)

� over- and underspends on central expenditure and in the deployment of the ISB have been accounted for appropriately.

I108 The DfE requires chief financial officers to sign a separate return to the Department containing a written assurance confirming the deployment of DSG. For the figures, the DfE relies on the published note to the authority’s accounts setting out the deployment of DSG. In order for this note to provide the requisite level of assurance on a consistent basis, the format of the note has been standardised at the request of the DfE, and is set out below, along with explanatory material to assist in the completion of the note.

I109 The following illustrative note to the accounts provides information that will meet The Accounts and Audit (England) Regulations 2011 requirements on the application of DSG and


the assurance required by the DfE. The illustration only covers expenditure in relation to the grant, rather than being a comprehensive statement of expenditure against the Schools Budget for the year. The table shows the allocation that the authority made of the grant and the expenditure incurred in the year that was eligible for DSG funding. Practitioners may find that their own local circumstances differ from those in the illustration and additional lines (with explanation) or explanatory notes might be necessary to explain fully the authority’s position.

ILLUSTRATION: DISCLOSURE OF DEPLOYMENT OF DEDICATED SCHOOLS GRANTThe council’s expenditure on schools is funded primarily by grant monies provided by the Department for Education, the Dedicated Schools Grant (DSG). DSG is ring-fenced and can only be applied to meet expenditure properly included in the Schools Budget, as defined in the School Finance and Early Years (England) Regulations 2011. The Schools Budget includes elements for a range of educational services provided on an authority-wide basis and for the Individual Schools Budget, which is divided into a budget share for each maintained school.

Details of the deployment of DSG receivable for 20XX/YY are as follows (example shown for 2014/15):

Notes Central Expenditure

Individual Schools Budget

Total

A Final DSG for 2014/15 before academy recoupment

1

B Academy figure recouped for 2014/15 2

C Total DSG after academy recoupment for 2014/15

3 (= 1-2)

D Plus: Brought forward from 2013/14 4

E Less: Carry-forward to 2015/16 agreed in advance

5

F Agreed initial budgeted distribution in 2014/15

6 7 8 (=3+or-4 and/or+or-5)

G In-year adjustments 9 10 11 (=9+10)

H Final budget distribution for 2014/15 12 (=6+or-9) 13 (=7+or-10) 14 (=8+or-11)

I Less: Actual central expenditure 15 15

J Less: Actual ISB deployed to schools 16 16

K Plus Local authority contribution for 2014/15

17 18 19 (=17+18)

L Carry-forward to 2015/16 20 (=12-15+17) 21 (=13-16+18) 22 (=20+21+or-5)

A: Final DSG figure before any amount has been recouped from the authority excluding the January 15 early years block adjustment.

B: Figure recouped from the authority in 2014/15 by the DfE for the conversion of maintained schools into academies.

C: Total figure after DfE academy recoupment for 2014/15.

D: Figure brought forward from 2013/14 should be as agreed with the Department. Details of the exercise to obtain this agreement were contained in the Financial Monitoring Team’s email circulated in May 2014.


E: Any amount which the authority decided after consultation with the schools forum to carry forward to 2014/15 rather than distribute in 2014/15 – this may be the difference between estimated and final DSG for 2014/15, or a figure (positive or negative) brought forward from 2013/14 which the authority is carrying forward again.

F: Budgeted distribution of DSG, adjusted for carry-forward, as agreed with the schools forum.

G: Changes to the initial distribution, for example, adjustments for exclusions, or final early years block adjustment.

H: Budgeted distribution of DSG as at the end of the financial year.

I: Actual amount of central expenditure items in 2014/15 – amounts not actually spent, eg money that is moved into earmarked reserves, should be included in items L20 or L21 as carried forward.

J: Amount of ISB actually distributed to schools (ISB is regarded for DSG purposes as spent by the authority once it is deployed to schools’ budget shares).

K: Any contribution from the local authority in 2014/15 which will have the effect of substituting for DSG in funding the Schools Budget. Do not include any change in balances held by schools as they are not to be recorded in this note.

L: Carry-forward to 2015/16, ie:

– For central expenditure, difference between final budgeted distribution of DSG (item H12) and actual expenditure (item I15), plus any local authority contribution (item K17).

– For ISB, difference between final budgeted distribution (item H13) and amount actually deployed to schools (item J16), plus any local authority contribution (item K18).

– Total is carry-forward on central expenditure (item L20) plus carry-forward on ISB (item L21) plus/minus any carry-forward to 2015/16 already agreed (item E5).

I110 As DSG is paid specifically to finance the Schools Budget, it is appropriate to credit the grant receivable for the year to the Children’s and Education Services line in the Comprehensive Income and Expenditure Statement.

Officers’ Remuneration – England and WalesI111 Paragraph 3.4.5.1 of the Code contains requirements for the disclosure of the remuneration

of higher paid officers. However, these requirements are derived from (and supplemented by) the overarching requirements of the Accounts and Audit Regulations:

� for England – Regulation 7 of the Accounts and Audit (England) Regulations 2011 (SI 2011/817).

� for Wales – Regulation 7A of the Accounts and Audit (Wales) Regulations 2005 (SI 2005/368 (W.34)), as amended by SI 2010/683 (W.66).

I112 There are two related disclosures required by the regulations:

� figures for the number of officers whose remuneration was £50,000 or more, grouped in £5,000 bands

� the individual remuneration of senior employees.

Definitions Common to the Banding Note and the Senior Employees Note

I113 There are a number of definitions in the regulations that apply to the preparation of the notes, some of them requiring interpretation by authorities to determine exactly what they cover.


Remuneration

I114 The regulations define remuneration as:

... all amounts paid to or receivable by a person, and includes sums due by way of expenses allowance (so far as those sums are chargeable to United Kingdom income tax), and the estimated money value of any other benefits received by an employee otherwise than in cash.

I115 In England,4 the categories of remuneration are:

(i) the total amount of salary, fees or allowances paid to or receivable by the person in the current and previous year;

(ii) the total amount of bonuses so paid or receivable in the current and previous year;

(iii) the total amount of sums paid by way of expenses allowance that are chargeable to United Kingdom income tax, and were paid to or receivable by the person;

(iv) the total amount of any compensation for loss of employment paid to or receivable by the person, and any other payments made to or receivable by the person in connection with the termination of their employment by the relevant body, or, in the case of a relevant police officer, the total amount of any payment made to a relevant police officer who ceases to hold office before the end of a fixed term appointment;

(v) the total estimated value of any benefits received by the person otherwise than in cash that do not fall within (i) to (iv) above, are emoluments of the person, and are received by the person in respect of their employment by the relevant body or in their capacity as a police officer; and

(vi) in relation to relevant police officers, any payments, whether made under the Police Regulations 2003(a) or otherwise, which do not fall within (i) to (v) above.

For the purposes of disclosing senior officer remuneration in England and Wales, employers’ pension contributions must also be included in addition to the above categories of remuneration (see paragraph I138 below).

I116 Amounts paid in relation to compensation for loss of employment would not normally be regarded as remuneration as they are not paid in return for services rendered to the authority by the person; however they qualify under the definition in the regulations as amounts paid to or receivable by a person who is an employee. The general definition would exclude employer’s pension contributions calculated as part of a termination package, except where the person is a senior officer.

I117 With regard to payments in relation to responsibilities for acting returning officers, paragraph 4.5 of the Acting Returning Officers Manual makes it clear that the ARO role is separate from an officer’s employment with the local authority, even though they take on the role directly as a result of that employment: Practitioners will need to determine whether any payments then made in relation to the ARO role meet the authority’s interpretation of ‘remuneration…in respect of their employment by the relevant body’ per the Accounts and Audit Regulations.

4. The Accounts and Audit (England) Regulations 2011.


Salary

I118 The regulations do not define salary, although it is an important factor in deciding the individuals to be included in the senior employees note. It is generally accepted that salary represents amounts received under a contract of employment for services rendered (before the deduction of employees’ pension contributions) other than bonuses, allowances, benefits in kind or compensation payments.

I119 A particular issue will arise when an officer takes on additional duties and pay is increased for acting up. It should be presumed that such payments are salary unless it is clear that they are performance related (a bonus) or recompense for any loss or other diminution suffered by the employee (an allowance).

Employee

I120 The regulations include the following definitions of an employee:

� England – a member of the relevant body and a holder of an office under the relevant body, but does not include a person who is an elected councillor

� Wales – a holder of an office under the local government body, not including a person who is an elected councillor.

I121 Disregarding police officers, the formal relationship of employer/employee determines whether a person is included within the scope of the notes. As the notes are based on statutory provisions whereby form takes precedence over substance, there is no opportunity to include persons whose relationship with the authority is in substance employer/employee.

I122 This has the following implications:

� a person employed by an authority but seconded to another body will remain an employee of the authority, unless a formal employer/employee relationship has been established with the host body

� a person seconded by an authority from another body will not become an employee of the authority, unless a formal employer/employee relationship has been established with the authority

� where staff are shared by an authority and another body, analysis will be required as to whether formally the person is employed by both bodies or is employed by one and seconded to the other – this may result in the person being included entirely in the note for the employing authority

� whether the authority pays the salary of the person is a relevant consideration but is not a defining characteristic – for instance, teachers at certain categories of schools will formally be employed by the governors but might be paid through the authority’s payroll; their contract of employment will take precedence over the source of payment.

Senior Police Officer

I123 A senior police officer is defined as a member of a police force holding a rank above that of superintendent (ie chief superintendent and above).


Banding Note

I124 The requirements in the regulations for the banding note are:

� England – the number of employees or senior police officers in the year to which the accounts relate whose remuneration fell in each bracket of a scale in multiples of £5,000 starting with £50,000.

� Wales – the number of employees or police officers in the year to which the accounts relate whose remuneration fell in each bracket of a scale in multiples of £5,000 starting with £60,000.

I125 The important distinctions between the two requirements are that the English disclosures are limited only to senior police officers, but all police officers are included in Wales, and that bands in Wales start at £60,000 rather than £50,000.

I126 The statutory provisions exclude senior employees whose individual remuneration is disclosed from being part of the banding note. The two notes are thus complementary. If an authority decides that it wants the banding note to be comprehensive by including senior employees, then this should be made clear in the narrative accompanying the note.

I127 Once an authority has settled on its interpretation of ‘employees’ and ‘remuneration’, the note should be relatively straightforward to prepare. Salary payments should be available from the P60 payroll run, but it will be necessary to take steps to obtain information from other sources for taxable expenses and benefits and qualifying non-taxable termination payments.

I128 In order to capture total remuneration of £50,000/£60,000 or more it may be simplest to deduct the likely maximum values of expenses allowances chargeable to tax and the money value of other benefits to arrive at a threshold below £50,000 for taxable remuneration. For example:

£

Disclosure threshold 50,000

Less likely maximum values of:

Profit element of car allowance (600)

Other benefits:

� car loan/leased cars/travel cards (800)

� mobile phones (100)

48,500

I129 Salary payment above this threshold should be relatively easy to obtain from the P60 payroll run and the actual value of benefits received added back for employees at the margin, ie falling between £48,500 and £50,000, £58,500 and £60,000, etc to determine whether they are above the disclosure thresholds.

I130 Particular care may need to be taken to obtain information on the non-taxable portion of termination payments which may not be recorded through the normal payroll system. Care may also need to be taken to identify officers who have taken advantage of the substantial increase in limits on payments into pension schemes to make significant additional


voluntary contributions. P60 information may not be a reliable indicator of their gross pay. In such circumstances, records of salaries subject to national insurance contributions might be a more reliable basis for extracting the base data.

I131 Those whose annualised remuneration exceeds £50,000 but whose salaries and benefits actually paid fall below £50,000, due to working only part of the year for that authority, should not be included.

I132 When preparing the banding note for publication, additional detail should be provided by expanding the note or adding narrative where the basic note has unusual features. For instance, where significant termination benefits have been paid in one year they may have an exceptional impact on the numbers in higher bands that should be explained.

Senior Employees Note

I133 The requirements in the regulations for the senior employees note are:

The remuneration, set out according to specified categories, by the body during the financial year of senior employees, or relevant police officers, in respect of their employment by the body or in their capacity as a police officer, whether on a permanent or temporary basis – to be listed individually in relation to such persons who must nevertheless be identified by way of job title only (except for persons whose salary is £150,000 or more per year, who must also be identified by name).

(Please note the above text retains the large majority of the text from the regulations but has been set out above for ease of presentation. Where any issues of interpretation of the regulation arise, local authorities should refer directly to the regulations.)

Senior Employees

I134 The definition of senior employees relies substantially on amounts of salary (as opposed to total remuneration). Where an employee works part-time, practitioners must calculate an annualised salary as if the employee worked full-time. The annualised salary will be used to determine where the employee is in relation to the disclosure thresholds. However, the actual figures should be used in the note. For instance, an officer working two days a week for £25,000 would have an annualised salary of £62,500. They will need to be considered for the note if they meet the non-monetary criteria for a senior employee, even though only £25,000 will be shown as their remuneration.

I135 Senior employees are defined in the regulations as:

� all those whose salary is £150,000 or more

� all those whose salary is £50,000 or more (England) or £60,000 or more (Wales) who meet at least one of the following criteria:

– statutory chief officers (per section 2(6) of the Local Government and Housing Act 1989 as amended):

– head of paid service

– director of children’s services

– director of adult social services

– chief education officer


– chief officer of a fire brigade

– section 151 officer

– non-statutory chief officers (per section 2(7) of the 1989 Act as amended) – persons who meet at least one of the following criteria:

– a person for whom the head of the authority’s paid service is directly responsible

– a person who, as respects all or most of the duties of his post, is required to report directly or is directly accountable to the head of the authority’s paid service

– any person who, as respects all or most of the duties of his post, is required to report directly or is directly accountable to the local authority themselves or any committee or sub-committee of the authority

but not if their duties are solely secretarial or clerical

– a person who has responsibility for the management of the authority, to the extent that the person has power to direct or control the major activities of the authority (in particular activities involving expenditure of money), whether solely or collectively.

I136 The definition means that it is possible for some highly paid officers to be excluded from the note. For instance, an authority might employ a commercial services manager with a specific responsibility for income generation but with no strategic duties. Unless they report directly to the chief executive or to members, their lack of involvement in the major activities of the authority would lead to them being excluded. The same reasoning can also be applied to head teachers.

Relevant Police Officers

I137 Relevant police officers are defined in the regulations as:

� the chief constable (England and Wales) and the Commissioners of the Metropolitan or City of London Police

� any other senior police officer whose salary is £150,000 or more.

Disclosure Classes

I138 The categories of remuneration that must be disclosed for each senior employee or relevant police officer are:

� the total amount of salary, fees or allowances paid to or receivable by the person in the current and previous financial year

� the total amount of bonuses so paid or receivable in the current and previous financial year

� the total amount of sums paid by way of expenses allowance that are chargeable to UK income tax, and were paid to or receivable by the person

� the total amount of any compensation for loss of employment paid to or receivable by the person, and any other payments made to or receivable by the person in connection with the termination of their employment by the relevant body, or, in the case of a relevant police officer, the total amount of any payment made to a relevant police officer who ceases to hold office before the end of a fixed-term appointment


� the total estimated value of any benefits received by the person otherwise than in cash that do not fall within another category, are emoluments of the person, and are received by the person in respect of their employment by the body or in their capacity as a police officer

� in relation to relevant police officers, any payments, whether made under the Police Regulations 2003 or otherwise, which do not fall within another category, and

� the employer’s contribution to the person’s pension (see below).

I139 Contributions to a person’s pension are defined specifically as:

� in relation to contributions to the local government pension scheme established under section 7 of the Superannuation Act 1972, the sum of:

– the common rate of employer’s contribution specified in a rates and adjustments certificate prepared under Regulation 36 (actuarial valuations and certificates) of The Local Government Pension Scheme (Administration) Regulations 2008, being the amount appropriate for that body calculated in accordance with the certificate and Regulation 39(4) (employer’s contributions) of those regulations, multiplied by the person’s pensionable pay, and

– if applicable, the appropriate sum within the meaning of Regulation 40 (employer’s payment following resolution to increase membership or award additional pension) of those regulations

� in relation to contributions to the firefighters’ pension scheme established under the Fire Services Acts 1947 and 1959, the percentage of the aggregate of the pensionable pay calculated for the purposes of paragraph G2(3) and (4) of Schedule 2 to The Firemen’s Pension Scheme Order 1992, multiplied by the person’s pensionable pay

� in relation to contributions to the firefighters’ pension scheme established under the Fire and Rescue Services Act 2004, the percentage of the aggregate of the pensionable pay calculated for the purposes of paragraphs (2) and (3) of Rule 2 of Part 13 of Schedule 1 to The Firefighters’ Pension Scheme (England) Order 2006, multiplied by the person’s pensionable pay

� in relation to contributions to police pension schemes established under The Police Pensions Regulations 1987 or The Police Pensions Regulations 2006, the percentage of pensionable pay specified in Regulation 5(1) of The Police Pension Fund Regulations 2007, multiplied by the person’s pensionable pay.

I140 The definition of pension contributions excludes reference to schemes such as the teachers and civil service schemes that authorities might participate in. If amounts paid into these schemes are relevant to a senior employee’s remuneration, authorities should consider disclosing the amounts voluntarily.

I141 Where an employee has joined or left in the year and their remuneration is substantially less than the annualised amount, authorities should consider disclosing this fact and adding starting/leaving dates to the note.


Disclosure of Names and Posts

I142 The disclosure of remuneration by category must be made by reference to individuals, with the following provisos:

� where the senior employee or relevant police officer’s salary is £150,000 or more per year, they must be identified by name and job title

� where the senior employee or relevant police officer’s salary is less than £150,000, only their job title should be disclosed.

Confidentiality

I143 When the requirement for a note of senior employees’ remuneration was first introduced, exemptions from disclosure were available where an effective confidentiality agreement was in place. These exemptions have now all lapsed and the requirement to publish the note overrides any contractual agreement to keep any details of remuneration confidential.

Comparatives

I144 Paragraph I138 sets out specific requirements for prior period comparatives, requiring disclosure by category of remuneration. The requirements are also specific to individuals – prior figures are only required for employees qualifying for the current year note, not for persons who left the authority in the prior year.

Remuneration Report – ScotlandI145 Paragraph 3.4.5.2 of the Code requires local authorities in Scotland to produce a statutory

Remuneration Report as a part of the annual statutory accounts in accordance with The Local Authority Accounts (Scotland) Regulations 1985 (SI 1985/267) as amended by The Local Authority Accounts (Scotland) Amendment Regulations 2011 (SSI 2011/64). These requirements have been superseded by The Local Authority Accounts (Scotland) Regulations 2014 (SSI 2014/200). The fundamental requirements have not significantly changed and therefore the Scottish Government’s additional guidance, including example disclosures, in Finance Circular 8/2011 still apply. The only substantive change is the requirement to include the ‘Exit Packages’ disclosure within the Remuneration Report.

Statutory Definitions

I146 The regulations specify definitions of some terms. Practitioners will need to refer to the Regulations for precise details; however, a brief summary of some of the definitions is provided below as an overview.

I147 Relevant person – details of remuneration are required for any ‘relevant person’. The definition includes:

� Senior councillors: leader of the council, civic head, or a councillor who is so designated by the council in determining remuneration.

� Senior employees include:

– an employee, normally a senior manager, who has the power to direct or control the major activities of the authority either solely or collectively with others


– an employee in a politically restricted post as defined in the Local Government and Housing Act 1989 (paragraphs 2(1) (a),(b) & (c)), or

– an employee with annual remuneration (see below) of £150,000 or more.

� Senior police officers, ie chief constable; deputy or assistant chief constable or any other officer with annual remuneration of £150,000 or more.

� Employees of and appointments to subsidiaries: chief executive or most senior manager; appointed councillors; or any employee or director of the subsidiary with annual remuneration of £150,000 or more.

I148 Annual remuneration – the regulations require that an equivalent annualised remuneration is calculated to determine whether an employee or other person is a ‘relevant person’. For example, an employee paid at a rate per hour that, in full-time equivalent terms, would be over £150,000 per annum, should be classified as a ‘relevant person’ regardless of the fact that actual remuneration was less than £150,000.

I149 Remuneration – the definition includes salary, fees and bonuses, taxable expenses, non-monetary benefits, and compensation for loss of employment or contract termination. The definition excludes employer’s pension contributions.

Overview of the Disclosure Requirements

I150 The following provides an overview of the disclosures that authorities are required to make:

1) Details of the local authority’s remuneration policy for senior employees and senior councillors and details of any role the local authority has in determining the remuneration policy for its subsidiaries.

2) A description of the role and the membership of the committee of the local authority that deals with remuneration arrangements or, where such a committee does not exist, provide details of how the remuneration arrangements are managed within the authority.

3) The number of employees (or police officers) whose remuneration in the year was greater than or equal to £50,000 grouped in rising bands of £5,000.

4) The following disclosures for any subsidiaries of the local authority:

a) the full post, title and name of the chief executive or the most senior manager if there is no chief executive

b) the name of each councillor to which the subsidiary paid remuneration in the year

c) the full post and title of any director or employee whose annual remuneration, (including any remuneration from the local authority) was £150,000 or more.

5) Separate disclosure of the remuneration and pension benefits (in appropriate tabular formats) of posts held and names of senior employees, senior councillors, senior police officers, persons included by virtue of paragraph 4) above (paragraph 5 of the schedule to the regulations) and officers whose remuneration is £150,000 or more (where relevant) in accordance with the definitions, the format and categorisation prescribed by the regulations and the guidance issued by the Scottish Government (see Finance Circular 8/2011 and paragraph I151 below).


Implementing the Requirements

I151 The guidance issued by the Scottish Government on the Remuneration Report is detailed and should be referred to directly by Scottish local authorities. It sets out example disclosures and formats to demonstrate the requirements of the amending regulations. In particular it includes the following guidance:

� the placement of the Remuneration Report in the statutory accounts – the guidance suggests that positioning this with the governance statement would be appropriate

� Scottish authorities should include the Code’s reporting requirements in relation to exit packages (see paragraphs I153 to I165 below) in the Remuneration Report

� the report should be approved and signed by the chief executive and a leading council member

� local authorities should clearly identify which parts of the report are subject to audit

� comparatives are required

� a recommendation that best practice is to treat convenors and vice convenors of police and fire functions and joint boards as senior councillors

� sample disclosures on remuneration arrangements for senior councillors, senior employees and senior police officers

� clarification that the disclosure for number of employees by pay bands is for actual remuneration, not full-time equivalent ‘remuneration’, eg a person on a £60,000 salary only employed for the last two months of the year would not be included as actual remuneration would only be £10,000

� the disclosure should also include senior employees

� a sample disclosure by pay band

� disclosures in relation to subsidiary bodies

� disclosure (separately) of the remuneration and pensions benefits for ‘relevant persons’ of posts held (see paragraph 5 of the schedule to the regulations); Annex B to the guidance provides examples of each of these disclosures

� clarification on treatment in the Remuneration Report disclosures of employer’s pension contributions

� the treatment in the Remuneration Report disclosures of additional payments made to senior employees or councillors received from subsidiary bodies or joint boards.

I152 It would also be appropriate to include the Code disclosure note on aggregate members’ salaries, allowances and expenses, etc (see paragraph 3.4.4.1(6) of the Code) in the Remuneration Report.

Exit Packages – All Administrations I153 Paragraph 3.4.4.1(6b) of the Code requires local authorities to disclose in bands the numbers

of exit packages agreed and the cost of those packages to the authority in the financial year in rising bands of £20,000 up to £100,000 and bands of £50,000 thereafter. As with the vast majority of the non-statutory disclosures to the financial statements, this disclosure should


relate to the financial consequences of the item in question, ie the exit packages recognised and reported in the financial statements.

I154 It is recommended that the exit package disclosure is amalgamated with the requirements of paragraph 6.3.3.1 of the Code in relation to the disclosure of termination benefits, where material. Scottish authorities must include the ‘Exit Packages’ disclosure note in the Remuneration Report.

I155 It should be noted that where confidentiality issues arise in relation to the disclosure of exit packages, authorities will need to seek the advice of their legal advisors on what can or cannot be included in the disclosure.

Recognition and Measurement

I156 Exit packages included in the bands are those that have been agreed by the authority, ie those packages for which the authority is demonstrably committed. The agreement may be legal, contractual or constructive at the end of the financial year in question.

I157 The cost included in the exit packages will be those termination benefits defined and measured in accordance with chapter six of the Code (see Module 6, section C). The disclosure of exit packages will therefore need to be reported following the recognition and measurement requirements of section 6.3 of the Code on termination benefits – the specific paragraphs in Module 6, section C that are particularly relevant are highlighted below.

I158 Local authorities will therefore need to include those costs of exit packages that are reported in the Comprehensive Income and Expenditure Statement across the relevant services and in Non Distributed Cost, eg redundancy costs (voluntary and compulsory), the accrued cost of added years (the pension strain), and other departure costs. This will include any termination benefits accrued and provided for under IAS 19 Employee Benefits and IAS 37 Provisions, Contingent Liabilities and Contingent Assets as adopted by the Code (see paragraphs C9 and C10 of Module 6 of the Guidance Notes).

I159 There may be occasions where the actual cost for exit packages is lower or higher than estimated in the provision. It will be important that adequate explanation is given in the relevant financial statements to ensure that it is clear which packages are disclosed in each financial year’s statements.

Pension Strain

I160 Pension strain arises when an employee retires early without actuarial reduction of pension. As noted above, authorities will need to report the accrued cost of the pension strain resulting from the exit/departure of the employee recognised in the Comprehensive Income and Expenditure Statement in the exit package disclosure and not the cash payments made to the pension fund.

I161 Further guidance in relation to the accounting treatment of the pension strain is provided in Module 6, section E. It should be noted that with the exception of any of the pension strain relating to ill health retirements (see also paragraph I165 below) such costs are termination benefits.


Disclosing Costs Charged to the Comprehensive Income and Expenditure Statement

I162 The note requires disclosure of the total cost of exit packages in each band that have been charged to the Comprehensive Income and Expenditure Statement in the year. The Code requires that bands are combined where it is necessary to ensure that individual exit packages cannot be identified (except where disclosure of payments to the individuals is required elsewhere under regulations). It should be noted that the exit package disclosures are separate from the disclosures required by the Accounts and Audit Regulations in England and Wales. In Scotland, the disclosures are included in the statutory Remuneration Report as required by The Local Authority Accounts (Scotland) Regulations 2014 (SSI 2014/200).

I163 Authorities may also wish to add further relevant context in relation to exit packages to this disclosure. This might include consideration of how material termination benefits are reflected in this disclosure as arguably the bands may mean that all termination benefits are included.

Definition of Exit Packages

I164 The Code does not set out a precise definition of exit packages and authorities will need to consider the relevant departure costs that have been recognised in the financial statements in accordance with the Code’s requirements on termination benefits. Therefore, as set out in the recognition and measurement section above, authorities will need to disclose the costs of all relevant exit packages covered by the disclosure and in accordance with the definition of termination benefits in paragraph 6.1.2.1 of the Code.

Ill Health Retirements

I165 Exit packages relating to ill health retirements or departures are not considered to be termination benefits in accordance with the requirements of the Code. Ill health retirements are not discretionary and not within the gift of an employer. The employer has no control over whether an individual is awarded an ill health pension or any augmentation of service which may arise as a consequence and therefore should not be included in the exit packages disclosure as these costs do not meet the definition of termination benefits in paragraph 6.1.2.1 of the Code.

J HOUSING REVENUE ACCOUNT (ENGLAND)

Introduction and Statutory BackgroundJ1 The Housing Revenue Account (HRA) is a record of revenue expenditure and income relating

to an authority’s housing stock. Its primary purpose is to ensure that expenditure on managing tenancies and maintaining dwellings is balanced by rents charged to tenants. Consequently, the HRA is a statutory account, ringfenced from the rest of the General Fund, so that rents cannot be subsidised from council tax (or vice versa).

J2 The ringfence is controlled by Schedule 4 to the Local Government and Housing Act 1989 (1989 Act), which specifies the debits and credits to be made to the HRA and excludes any other postings. The 2012/13 year marked the commencement of the new self-financing regime for the Housing Revenue Account in England, which was introduced by means


of the Localism Act 2011 and the suite of self-financing determinations issued by the Department for Communities and Local Government (DCLG) on 1 February 2012. This suite of Determinations includes The Item 8 Credit and Item 8 Debit (General) Determination from April 2012 (the Item 8 Determination). The Item 8 Determination sets out the capital accounting and capital financing entries under the 1989 Act. The statutory provisions are supported by the Housing Revenue Account Manual, available from the DCLG website.

J3 Authorities are required by section 74(1) of the 1989 Act to keep the HRA in accordance with proper practices. Proper practices are defined in section 21(2) of the Local Government Act 2003 as those accounting practices which:

� the authority is required to follow by virtue of any enactment (statutory proper practices) – the principal statutory proper practices are determined by the 1989 Act, the 1993 Act, the Audit Commission Act 1998, The Accounts and Audit (England) Regulations 2011, The HRA (Accounting Practices) Directions 2011 and the Item 8 Determination

� are contained in a code of practice which is identified for this purpose by regulations made by the Secretary of State (non-statutory proper practices) – the most relevant to the HRA are the Code and SeRCOP.

J4 Section 21(3) of the 2003 Act also requires that, in the event of any conflict between statutory and non-statutory practices, only those defined by statute are to be regarded as proper practices. This is particularly important in the context of capital charges and receipts, where calculation of the amounts to be credited or debited to the HRA is determined by the Secretary of State. However, problems can also arise with apparently less complex transactions such as the recharging of support services and administrative expenses.

J5 Paralleling the treatment for the council’s wider operations, the transactions relating to the HRA have been separated into two statements:

� the HRA Income and Expenditure Statement

� the Movement on the HRA Statement.

As the Movement on the HRA Statement incorporates the surplus or deficit on the HRA Income and Expenditure Statement, it effectively meets the statutory requirement to include the HRA as a single statement in the Statement of Accounts. The net movement will reconcile to the statutory outturn for the HRA, even though some of the gross transactions posted to the two statements will not have been specified in the statutory arrangements.

The HRA Income and Expenditure StatementJ6 Paragraph 3.5.3.1 of the Code contains requirements for the presentation of an HRA

Income and Expenditure Statement and the inclusion of a description of the purpose of the statement. The Code recommends the following description:

The HRA Income and Expenditure Statement shows the economic cost in the year of providing housing services in accordance with generally accepted accounting practices, rather than the amount to be funded from rents and government grants. Authorities charge rents to cover expenditure in accordance with regulations; this may be different from the accounting cost. The increase or decrease in the year, on the basis of which rents are raised, is shown in the Movement on the HRA Statement.


J7 The general principles for the construction of the HRA Income and Expenditure Statement are the same as those for the Comprehensive Income and Expenditure Statement, set out in section F of this module, except for:

� the insertion of an additional subsection that adds additional expenditure to the Net Cost of HRA Services recognised in accordance with SeRCOP, so that the HRA receives a complete allocation of support services, including the identifiable share of the Corporate and Democratic Core and Non Distributed Costs (see paragraphs J26 to J28)

� the non-inclusion of Other Comprehensive Income and Expenditure items such as surplus/deficit on the revaluation of non-current assets.

J8 An illustrative example of the HRA Income and Expenditure Statement is provided below. For completeness, the example includes the full range of lines set out in the Code. Where an authority has no entries against a particular line, it should be omitted from the published statement.

ILLUSTRATION: HRA INCOME AND EXPENDITURE STATEMENT

20XX/YY 20YY/ZZ

£000s £000s £000s

Expenditure

(21,935) Repairs and maintenance (22,333)

(14,689) Supervision and management (15,304)

(359) Rents, rates, taxes and other charges (285)

(12,894) Depreciation, impairment and revaluation losses of non-current assets

(12,506)

(50) Debt management costs (64)

(371) Movement in the allowance for bad debts (not specified by the Code)

(224)

– Sums directed by the Secretary of State that are expenditure in accordance with the Code

–

(50,298) Total Expenditure (50,716)

Income

55,424 Dwelling rents 56,473

1,073 Non-dwelling rents 1,143

3,164 Charges for services and facilities 3,281

2,573 Contributions towards expenditure* 4,656

– Sums directed by the Secretary of State that are income in accordance with proper practices

–

62,234 Total Income 65,553

11,936 Net Expenditure or Income of HRA Services as included in the whole authority Comprehensive Income and Expenditure Statement

14,837


20XX/YY 20YY/ZZ

£000s £000s £000s

(261) HRA services’ share of Corporate and Democratic Core

(329)

(49) HRA share of other amounts included in the whole authority net expenditure of continuing operations but not allocated to specific services

(53)

11,626 Net Income for HRA Services (NB: Expenditure if negative)

14,455

HRA share of the operating income and expenditure included in the whole authority Comprehensive Income and Expenditure Statement:

(244) Gain or (loss) on sale of HRA non-current assets (129)

(9,817) Interest payable and similar charges (9,878)

490 Interest and investment income 621

– Net interest on the net defined benefit liability (asset)

–

– Capital grants and contributions receivable –

2,055 Surplus or (deficit) for the year on HRA services

5,069

* Where an amount of grant or contribution is significant such transactions may be identified separately as a material item of income on the face of the HRA.

Repairs and Maintenance

J9 This line covers the expenditure of the authority for the year in respect of the repair and maintenance of houses and other property within the account. The figure disclosed is the actual repairs and maintenance costs for the year, even where the authority has chosen to maintain a separate Housing Repairs Account. Although the repairs account does allow an authority to manage the impact of peaks and troughs on rents (see paragraph J42), it should be fully consolidated into the HRA Income and Expenditure Statement and any difference between actual expenditure and the contribution to the repairs account dealt with as a transfer in the Movement on the HRA Statement.

J10 The costs of work to property will be expenditure for capital purposes where they can be added to a non-current assets balance in accordance with the Code. In the context of HRA property, such works might include, for example, re-roofing or the installation of central heating or double glazing but not painting or the replacement of tiles or broken windows. Where works meet the definition of subsequent expenditure on HRA property, plant and equipment on the Balance Sheet but the authority still wishes the cost to be met from the


HRA, material amounts should not be debited against this line but charged to the Movement on the HRA Statement (see paragraph J42).

Supervision and Management

J11 This line represents the expenditure of the authority for the year in respect of the supervision and management of dwellings, including tenancy management, rent collection, grounds maintenance, etc.

Rents, Rates, Taxes and Other Charges

J12 This includes all such items which the authority is liable to pay in respect of property within the HRA, including rentals for properties leased under operating leases and council tax on empty dwellings.

Depreciation, Impairments and Revaluation Losses in relation to Non-current Assets

J13 Authorities are required to charge depreciation, impairment and revaluation losses on all HRA properties calculated in accordance with proper practices, including non-dwelling properties. The Item 8 Determination specifies the treatment for depreciation; ie to follow proper practices. There are, however, transitional arrangements applying for a five-year period which permit authorities to make a credit transfer from the HRA to the Major Repairs Reserve for housing dwelling depreciation in excess of a ‘notional’ Major Repairs Allowance (MRA) (see also paragraphs D49 to D52 of Module 4), thus allowing authorities to reduce the impact of depreciation on the bottom line of the HRA for the transitional period (a five-year period which commenced in 2012/13). Authorities should refer to the requirements of the Determination for the calculation of this notional MRA figure.

J14 Chief financial officers (CFOs) are responsible for deciding the most appropriate method of estimating depreciation for their authority’s assets and shall have regard to the provisions of paragraphs 4.1.2.37 to 4.1.2.44 of the Code when determining the method to be used in the estimation of depreciation for HRA properties.

J15 Authorities are required by The Accounts and Audit (England) Regulations 2011 to maintain the Major Repairs Reserve (MRR), which controls an element of the capital resources required to be used on HRA assets or for capital financing purposes. Under the new arrangements in the self-financing HRA there are two entries which primarily will establish the resources available on an annual basis in the Major Repairs Reserve:

� the regulations require the MRR to be credited with an amount equivalent to the total depreciation charges for all HRA assets

� if authorities choose to adopt the transitional arrangements, the Item 8 Determination permits them to abate the amount they charge for depreciation for HRA dwellings down to a notional Major Repairs Allowance figure (thus effectively reducing the MRR by up to this amount).

The accounting entries for HRA depreciation are covered in Module 4, paragraphs D49 to D52.

J16 Impairment and revaluation losses on HRA assets will be debited to the HRA Income and Expenditure Statement in accordance with the general provisions of the Code – ie where there is no balance or an insufficient balance of accumulated gains on the Revaluation


Reserve for the relevant assets (this is also supported by the Item 8 Determination). There is, though, a crucial difference between the treatment of impairment and revaluation losses and depreciation, in that they are not implicated in any adjustments with the MRR. Impairment and revaluation losses on HRA dwellings are permitted to be reversed out in the Movement on the HRA Statement, to avoid having an impact on rent levels, again in accordance with the determination, which explicitly permits reversals of impairment and revaluation losses on HRA dwellings (on a five-year transitional basis), with the compensating credit matched by a debit from the Capital Adjustment Account. It is important to note that:

� the reversals of impairment and revaluation losses are permitted by the HRA on a transitional basis, ie a five-year period which commenced in 2012/13

� the Item 8 Determination does not permit a reversal of impairment or revaluation losses on non-dwellings assets in the HRA.

Debt Management Costs

J17 The Item 8 Determination requires authorities to estimate the proportion of their total debt management expenses, calculated in accordance with proper practices, attributable to the HRA. The Department for Communities and Local Government regards both the calculation of debt management expenses and the attribution of these to HRA and other services as a matter for local authorities and their auditors.

Movement in the Allowance for Bad or Doubtful Debts

J18 The Code does not specify a line for movements on the allowance for bad debts, but they cannot comfortably be fitted under any of the other expenditure headings. Authorities should therefore insert their own line at this point in the HRA Income and Expenditure Statement for increases or decreases in the allowance.

Sums Directed by the Secretary of State that are Expenditure in Accordance with the Code

J19 This is a reserve item that allows account to be taken of any future directions that the Secretary of State might make. It is not currently expected that authorities will generally need to debit any amounts against this line from the Code. Where items classified as Revenue Expenditure Funded from Capital under Statute are being charged to the HRA in accordance with the Item 8 Determination, these should if possible be assigned to one of the specific expenditure headings. However, if there is no good fit, then the expenditure should be debited against this line.

Dwelling Rents

J20 This item comprises the income of the authority receivable for the year from rents in respect of houses within the HRA. The Code’s requirement for this item to be disclosed ‘gross’ means that the total should include rent remitted by way of rebate, which is financed by a compensating credit from the General Fund. (There is no requirement in the Code for authorities to disclose the split of rent income between amounts due from tenants and rent rebate, but practitioners might decide that it would be helpful to do so.)


J21 The requirement for a ‘gross’ disclosure means that the figure should exclude any amounts in respect of rent foregone on void properties and discretionary rent-free periods.

Non-dwelling Rents

J22 This item comprises the income of the authority receivable for the year from rents and charges in respect of other property within the account, such as land, garages, shops, public houses, etc.

Charges for Services and Facilities

J23 This represents the income of the authority for the year in respect of services or facilities provided by the authority in connection with the provision of houses and other property within the account. It includes additional charges for such things as furniture, board and laundry facilities, but will exclude payments for welfare services that are outside the scope of the HRA.

Contributions Towards Expenditure

J24 This item covers contributions received, mainly from the General Fund and outside bodies or persons, towards expenditure which has been properly debited to the HRA, such as those in respect of benefits or amenities provided under housing powers but shared by the wider community. Where service charges are received from leaseholders, they can be applied to net down the relevant expenditure, rather than credited as part of this item, provided that the expenditure was incurred directly on the leasehold property and can be identified separately from that incurred on HRA property.

Sums Directed by the Secretary of State that are Income in Accordance with Proper Practices

J25 This is a reserve item that allows account to be taken of any future directions that the Secretary of State might make. It is not currently expected that authorities will need to credit any amounts against this line from the Code.

HRA Share of Corporate and Democratic Core

J26 The Net Cost of Services in the HRA Income and Expenditure Statement is generally prepared in accordance with the total cost requirements of the Service Reporting Code of Practice. However, the statutory requirement for the HRA to be debited with the expenditure actually incurred by the authority during the year means that an additional debit is required to charge the HRA with elements of Corporate and Democratic Core costs that can either:

� be identified directly to HRA services, or

� be fairly apportioned to HRA services in line with SeRCOP’s seven general principles of overhead apportionment.

J27 The debit is made to the HRA Income and Expenditure Statement after a sub-heading for the Net Cost of HRA Services included in the Comprehensive Income and Expenditure Statement, so that the entry for the HRA in the latter can be read across straightforwardly to the HRA


Statement. However, the aggregate HRA Net Cost of Services is then presented to include this debit.

HRA Share of Other Amounts Included in the Whole Authority Net Expenditure of Continuing Operations but Not Allocated to Specific Services

J28 In addition to a share of Corporate and Democratic Core costs that can be allocated to the HRA, there may be other items of expenditure excluded from total cost that should reasonably be debited against the HRA Net Cost of Services in order to satisfy statutory requirements. Consideration should be given in particular to elements of Non Distributed Costs, eg past service costs and settlements relating to post-employment benefits that can fairly be related to HRA activity.

Gain or Loss on the Sale of HRA Non-current Assets

J29 The principles for recognising gains and losses on the sale of non-current assets in the HRA Income and Expenditure Statement are the same as those for the authority as a whole – see section E of Module 4. However, there are two transactions specific to the HRA that need particular consideration in determining whether assets are treated as held for sale or surplus assets within Property, Plant and Equipment:

� Right-to-buy sales – dwellings will be transferred to Assets Held for Sale once an authority determines that it has become highly probable that they will be sold, as the disposals will meet the conditions in paragraph 4.9.2.13 and 4.9.2.14 of the Code to the extent that a tenant’s actions in initiating a sale allows the authority to meet them.

� Stock transfers – stock awaiting transfer will also be accounted for as Assets Held for Sale in accordance with the conditions in paragraph 4.9.2.13 and 4.9.2.14 of the Code, as the transfer will normally be on terms that are usual and customary for sales of such assets that preclude active marketing.

Interest Payable and Similar Charges

J30 The Item 8 Determination refers to a number of items under this heading. For premiums payable on the early redemption of debt, the Determination sets out that this must be calculated in accordance with proper practices – the DCLG has clarified in its summary of consultation responses on the Determinations that ‘We believe that Regulation 30C of the Capital Finance Regulations will apply to the treatment of premiums and discounts as these should be calculated ‘in accordance with proper accounting practice’. Regulation 30C should apply to premiums and discounts that are outstanding at 1 April 2012 and to premiums and discounts where early repayment of loans takes place after this date’. In addition, paragraph 3.5.3.1 of the Code requires that the HRA Income and Expenditure Statement should include an HRA share of operating expenditure included in the Comprehensive Income and Expenditure Statement. It is considered therefore that the guidance on the statutory accounting requirements for premiums set out in paragraphs B18 to B21 of Module 7 will also apply to the HRA in England.

J31 Other items of interest payable or similar charges should be recognised in accordance with proper practices.


J32 Where material these items should include adjustments to reflect effective interest rates for particular loan types rather than contractual amounts payable for the year.

J33 An authority should determine a reasonable basis for identifying the share of these corporate costs that is attributable to the HRA. This will then be reconciled to the statutory debit in the Movement on the HRA Statement.

Interest and Investment Income

J34 The Item 8 Determination now has more general provisions for interest and investment income relating to the HRA and therefore these income items should be established in accordance with proper practices. Additional guidance on the estimation of these items attributable to the HRA is available in CIPFA’s Treasury Management in the Public Services: Guidance Notes for Local Authorities including Police Authorities and Fire Authorities. In addition, paragraph 3.5.3.1 of the Code requires that the HRA Income and Expenditure Statement should include an HRA share of operating income included in the Comprehensive Income and Expenditure Statement.

J35 The Determination also sets out that discounts on the early repayment of debt should be calculated in accordance with proper practices. Again, this would mean those practices permitted by Regulation 30C of the Capital Finance Regulations and proper practices in accordance with the Code. The provisions in paragraphs B18 to B21 of Module 7 in relation to discounts on the General Fund would be applicable to the HRA in England.

J36 An authority should determine a reasonable basis for identifying the share of this income that is attributable to the HRA. This will then be reconciled to the statutory credit in the Movement in the HRA Statement.

Net Interest on the Net Defined Benefit Liability (Asset)

J37 Allocations to the HRA of a share of the authority’s overall IAS 19 pensions interest cost will require a reliable basis of apportionment.

Capital Grants and Contributions

J38 The HRA may receive grants or contributions (eg developer contributions) to support expenditure on HRA assets. In the whole authority Comprehensive Income and Expenditure Statement these are included under the Taxation and Non-specific Grant Income and Expenditure heading. This treatment should also be adopted for the HRA Income and Expenditure Statement. Any credits should be reversed out in the Movement on the HRA Statement, to the Capital Grants Unapplied Account or the Capital Adjustment Account.

Movement on the HRA StatementJ39 The overall objectives for Movement on the HRA Statement and the general principles for

its construction are the same as those generally for the Movement in Reserves Statement, into which it is consolidated. The statement takes the outturn on the HRA Income and Expenditure Statement and reconciles it to the surplus or deficit for the year on the HRA Balance, calculated in accordance with the requirements of the Local Government and Housing Act 1989.


J40 An illustrative example of the Movement on the HRA Statement is provided below.

ILLUSTRATION: MOVEMENT ON THE HRA STATEMENT

20XX/YY 20YY/ZZ

£000s £000s £000s

2,577 Balance on the HRA at the end of the previous reporting period

2,160

2,055 Surplus or (deficit) for the year on the HRA Income and Expenditure Statement (see paragraph J8 above)

5,069

(1,036) Adjustments between accounting basis and funding basis under statute

(2,639)

1019 Net increase or (decrease) before transfers to or from reserves

2,430

(400) Transfers (to) or from earmarked reserves (1,000)

619 Increase or (decrease) in year on the HRA 1,430

3,196 Balance on the HRA at the end of the current reporting period

3,590

J41 Paragraph 3.5.3.3 of the Code requires further analysis to be provided (either on the face of the Movement on the HRA Statement or in notes) of the lines for:

� adjustments between accounting basis and funding basis under regulations

� transfers to or from (earmarked) reserves.

J42 The analysis should as a minimum contain the following items (to the extent that they are relevant).

Item Comments

Difference between interest payable and similar charges including amortisation of premiums and discounts determined in accordance with the Code and those determined in accordance with statute

See paragraphs to J30 and J33 for an explanation as to when an entry against this item might be required.

Difference between any other item of income and expenditure determined in accordance with the Code and determined in accordance with statutory HRA requirements (if any)

Where any accruals for holiday pay and other accumulating compensated absences have been made in the HRA Income and Expenditure Statement, they will be reversed out here.

Back pay in relation to equal pay settlements that have been charged to the HRA might also be adjusted here in accordance with statutory provisions for financing the expenditure.


Item Comments

Gain or loss on sale of HRA non-current assets

This line reverses out the gains and losses recognised in the HRA Income and Expenditure Statement, with three separate elements:

� a debit for the sale proceeds – credited to the Capital Receipts Reserve

� a credit for the carrying amount of assets – debited to the Capital Adjustment Account

� a credit back from the Capital Receipts Reserve for disposal costs that qualify to be met from the resulting capital receipts.

HRA share of contributions to or from the Pensions Reserve

The entry against this line will reverse out all the debits made for post-employment benefits applying the principles of IAS 19 and replace them with the pensions cost chargeable for the year in accordance with statutory provisions – employer’s contributions paid to the pension scheme relating to employees providing HRA services, and any continuing pension payments in relation to early retirements awarded to HRA employees. The credit entry is to the Pensions Reserve.

Capital expenditure funded by the HRA

This line will be the capital expenditure (if any) that the authority has decided to meet from rents in the year. The debit entry is matched with a credit in the Capital Adjustment Account.

Sums directed by the Secretary of State to be debited or credited to the HRA that are not expenditure or income in accordance with the Code

This is a reserve line that most authorities will not need to use.

Transfer to/from the Major Repairs Reserve

This line represents the transfers that the authority needs to make to ensure that an amount equal to depreciation is credited to the MRR. In addition authorities have the ability to reduce this amount by the amount that housing dwelling depreciation exceeds the notional Major Repairs Allowance (MRA). See paragraph J15 and paragraphs D49–D52 of Module 4 for an explanation of the item and its calculation.

Where an authority funds capital expenditure on dwellings from the MRR, the MRR is debited and the Capital Adjustment Account is credited. This transfer is recorded in the Movement in Reserves Statement.

Where repayments of principal of any amounts borrowed, or repayments to meet any liability in respect of credit arrangements (other than any liability which, in accordance with proper practices, must be charged to a revenue account),are to be funded from the MRR, this must be accounted for by debiting the Major Repairs Reserve and crediting the Capital Adjustment Account. The transfer must be recorded in the Movement in Reserves Statement.

The Item 8 Determination permits a debit to the HRA equal to the amount that has been credited to the HRA for decent homes backlog funding and a corresponding credit to the Major Repairs Reserve.

The Determination also permits authorities to make an additional transfer for an amount to the Major Repairs Reserve in excess of any charge for depreciation.


Item Comments

Transfer to/from the Capital Adjustment Account

In association with the preceding line, this line will cover the requirement in the Item 8 Determination to reverse out impairment and revaluation losses and items classified as Revenue Expenditure Funded from Capital under Statute that were debited to Net Cost of HRA Services in the HRA Income and Expenditure Statement. Where any credits have been made for capital grants (other than MRA) they will also be reversed out here.

Although HRA set-aside has been abolished, authorities can choose to make a revenue provision for debt repayment. This is most likely where an authority has undertaken unsupported prudential borrowing for HRA capital investment. The debit entry is matched with a credit in the Capital Adjustment Account.

Compensating transfers of depreciation may also be required in order to meet the requirement for an amount equal to MRA to be credited to the MRR – see previous line.

Transfer to/from Housing Repairs Account

The Code requires the actual cost of repairs carried out in the year to be debited to the HRA Income and Expenditure Statement, effectively consolidating any Housing Repairs Account that an authority might operate. This entry reconciles the bottom line of the HRA Balance to the contribution that the authority has determined to make to the repairs account for the year. For example, if the actual repairs for the year were £22.3m but the authority had determined to make a contribution of £21.85m for the year, this line would be a £450,000 credit, representing the overall reduction on the balance of the repairs account.

Disclosure RequirementsJ43 Paragraph 3.5.4.1 of the Code confirms the statutory status of the HRA as a memorandum

account within the General Fund. No separate Balance Sheet is thus required for the HRA and information presented in the Statement of Accounts is not required to show a split for the HRA unless the Code specifically requests one (eg for the face of the Movement in Reserves Statement).

J44 Having regard to paragraph 3.4.2.26 of the Presentation of Financial Statements section of the Code, paragraph 3.5.4.2 of the Code requires a housing authority to disclose the following information in the notes to the HRA Statements:

1) The number and types of dwelling in the authority’s housing stock

2) The amount of rent arrears (excluding amounts collectable on behalf of other agencies) and the aggregate Balance Sheet provision in respect of uncollectable debts.

3) Explanation of any sums directed by the Secretary of State to be debited or credited to the HRA.


Statutory Disclosure RequirementsJ45 The specific requirements in paragraph 3.5.5.1 of the Code for notes to the HRA financial

statements are derived from the HRA (Accounting Practices) Directions 2007. This has been overridden by the HRA (Accounting Practices) Directions 2011.

J46 Having regard to paragraph 3.4.2.26 of the Presentation of Financial Statements section of the Code, a housing authority shall disclose the following information in the notes to the HRA Statements:

1) The total Balance Sheet value of the land, houses and other property within the authority’s HRA as at 1 April in the financial year, and the closing Balance Sheet value as at 31 March in the financial year of:

a) council dwellings

b) other land and buildings

c) vehicles, plant, furniture and equipment

d) infrastructure and community assets

e) assets under construction

f) surplus assets not held for sale

g) investment properties

h) assets held for sale.

2) The vacant possession value of dwellings within the authority’s HRA as at 1 April in the financial year.

3) An explanation that the vacant possession value and Balance Sheet value of dwellings within the HRA show the economic cost to government of providing council housing at less than market rents.

4) The value of, and an explanation of, any charge calculated in accordance with proper practices in respect of revenue expenditure funded from capital under statute attributable to the HRA.

5) The value of, and an explanation of, any impairment charges [or revaluation losses] for the financial year in respect of land, houses and other property within the authority’s HRA, calculated in accordance with proper practices.

6) A breakdown of the amount of HRA subsidy payable to the authority for the financial year in accordance with the elements set out in the general formula in paragraph 3.1 of the General Determination of Housing Revenue Account Subsidy for the year.

7) A summary of total capital expenditure on land, houses and other property within the authority’s HRA during the financial year, broken down according to the following sources of funding:

a) borrowing

b) credit arrangements

c) capital receipts

d) revenue contributions (ie the debit under Item 2 of Part II of Schedule 4 to the Local Government and Housing Act 1989)


e) the Major Repairs Reserve.

8) A summary of total capital receipts from disposals of land, houses and other property within the authority’s HRA during the financial year.

9) An explanation of the capital asset charges accounting adjustment, calculated in accordance with the Item 8 Credit and Item 8 Debit (General) Determination for the year.

10) The total charge for depreciation for the land, houses or other property within the authority’s HRA, and the charges for depreciation5 for:

a) council dwellings

b) other land and buildings

c) vehicles, plant, furniture and equipment

d) infrastructure and community assets

e) assets under construction

f) surplus assets not held for sale

g) investment properties

h) assets held for sale.

11) An analysis of the movement on the Major Repairs Reserve for the financial year showing:

a) the balance on the Major Repairs Reserve on 1 April in the financial year

b) the amount transferred to the Major Repairs Reserve during the financial year

c) any amount transferred from the Major Repairs Reserve to the HRA during the financial year

d) the debits to the Major Repairs Reserve during the financial year in respect of capital expenditure on the land, houses and other property within the authority’s HRA

e) the debits in respect of any repayment, made in the year, of the principal of any amount borrowed where the repayment was met by payment out of the Major Repairs Reserve

f) debits in respect of the meeting of any liability, in that year, in respect of credit arrangements, other than any liability, which in accordance with proper practices, must be charged to a revenue account, where the meeting of that liability was met by payments out of the Major Repairs Reserve

g) the balance on the Major Repairs Reserve on 31 March in the financial year.

(It should be noted that a number of the above disclosures, eg depreciation on investment properties in the HRA, are likely to have zero values reported against them.)

5. Note it is appropriate to calculate depreciation charges on each of these classes of asset in accordance with the relevant sections of chapter four of the Code.


K HOUSING REVENUE ACCOUNT (WALES)

Introduction and Statutory BackgroundK1 The Housing Revenue Account (HRA) is a record of revenue expenditure and income relating

to an authority’s housing stock. Its primary purpose is to ensure that expenditure on managing tenancies and maintaining dwellings is balanced by rents charged to tenants. Consequently, the HRA is a statutory account, ringfenced from the rest of the Council Fund, so that rents cannot be subsidised from council tax (or vice versa).

K2 The ringfence is controlled by Schedule 4 to the Local Government and Housing Act 1989, which specifies the debits and credits to be made to the HRA and excludes any other postings. The Schedule is supplemented each year by the Item 8 Determination (which sets out capital accounting and capital finance entries) and the HRA Subsidy Determination (which calculates the annual subsidy receivable or payable by the authority).

K3 Authorities are required by section 74(1) of the 1989 Act to keep the HRA in accordance with proper practices. Proper practices are defined in section 21(2) of the Local Government Act 2003 as those accounting practices which:

� the authority is required to follow by virtue of any enactment (statutory proper practices) – the principal statutory proper practices are determined by the 1989 Act, the 1993 Act, The Accounts and Audit Regulations (Wales) 2005 and the Item 8 Determination

� are contained in a code of practice which is identified for this purpose by regulations made by the Secretary of State (non-statutory proper practices) – the most relevant to the HRA are the Code and SeRCOP.

K4 Section 21(3) of the 2003 Act also requires that, in the event of any conflict between statutory and non-statutory practices, only those defined by statute are to be regarded as proper practices. This is particularly important in the context of capital charges and receipts, where calculation of the amounts to be credited or debited to the HRA is determined by the Welsh Government. However, problems can also arise with apparently less complex transactions such as the recharging of support services and administrative expenses.

K5 Paralleling the treatment for the council’s wider operations, the transactions relating to the HRA have been separated into two statements:



As the Movement on the HRA Statement incorporates the surplus or deficit on the HRA Income and Expenditure Statement, it effectively meets the statutory requirement to include the HRA as a single statement in the Statement of Accounts. The net movement will reconcile to the statutory outturn for the HRA, even though some of the gross transactions posted to the two statements will not have been specified in the statutory arrangements.

The HRA Income and Expenditure StatementK6 Paragraph 3.5.3.1 of the Code contains requirements for the presentation of an HRA




K7 The general principles for the construction of the HRA Income and Expenditure Statement are the same as those for the Comprehensive Income and Expenditure Statement, set out in section F of this module, except for:

� the insertion of an additional subsection that adds additional expenditure to the Net Cost of HRA Services recognised in accordance with SeRCOP, so that the HRA receives a complete allocation of support services, including the identifiable share of the Corporate and Democratic Core and Non Distributed Costs (see paragraphs K29 to K31)


K8 An illustrative example of the HRA Income and Expenditure Statement is provided below. For completeness, the example includes the full range of lines set out in the Code, including some that are mutually exclusive – where an authority has no entries against a particular line, it should be omitted from the published statement.


20XX/YY 20YY/ZZ

£000s £000s £000s

Expenditure

(21,935) Management and Maintenance – Repairs and maintenance

(22,333)

(14,689) Management and Maintenance – Supervision and management

(15,304)

(359) Rents, rates, taxes and other charges (285)

– Negative HRA Subsidy payable –


(12,506)

(50) Debt management costs (64)

(371) Movement in the allowance for bad debts (not specified by the Code)

(224)

– Sums directed by the Welsh Government that are expenditure in accordance with the Code

–


Income




20XX/YY 20YY/ZZ

£000s £000s £000s

3,164 Charges for services and facilities 3,281

279 Contributions towards expenditure 284

794 HRA Subsidy receivable 2,372

– Sums directed by the Welsh Government that are income in accordance with proper practices

–


10,436 Net Expenditure or Income of HRA Services as included in the whole authority Comprehensive Income and Expenditure Statement

12,837


(329)

(49) HRA share of other amounts included in the whole authority Net Expenditure of Continuing Operations but not allocated to specific services

(53)


12,455






–

1,500 Capital grants and contributions receivable – Major Repairs Allowance

2,000

2,055 Surplus or (deficit) for the year on HRA services

5,069

Management and Maintenance – Repairs and Maintenance

K9 This line covers the expenditure of the authority for the year in respect of the repair and maintenance of houses and other property within the account. The figure disclosed is the actual repairs and maintenance costs for the year, even where the authority has chosen to maintain a separate Housing Repairs Account. Although the repairs account does allow an


authority to manage the impact of peaks and troughs on rents (see paragraph K42), it should be fully consolidated into the HRA Income and Expenditure Statement and any difference between actual expenditure and the contribution to the repairs account dealt with as a transfer in the Movement on the HRA Statement.

K10 The costs of work to property will be expenditure for capital purposes where they can be added to a non-current assets balance in accordance with the Code. In the context of HRA property, such works might include, for example, re-roofing or the installation of central heating or double glazing but not painting or the replacement of tiles or broken windows. Where works meet the definition of subsequent expenditure on HRA property, plant and equipment in the Balance Sheet but the authority still wishes the cost to be met from the HRA, material amounts should not be debited against this line but charged to the Movement on the HRA Statement (see paragraph K42).

Management and Maintenance – Supervision and Management

K11 This line represents the expenditure of the authority for the year in respect of the supervision and management of dwellings, including tenancy management, rent collection, grounds maintenance, etc.

Rents, Rates, Taxes and Other Charges

K12 This includes all such items which the authority is liable to pay in respect of property within the HRA, including rentals for properties leased under operating leases and council tax on empty dwellings.

Negative Subsidy Payable to the Welsh Government

K13 This line applies to those authorities where the subsidy calculation results in a negative amount; in other words, where income exceeds overall expenditure on the notional HRA. These authorities are said to have a negative entitlement to subsidy. In such circumstances, the authority is required to debit their actual HRA and pay to the Government a sum equivalent to the surplus on the notional HRA.

Depreciation, Impairments and Revaluation Losses in relation to Non-current Assets

K14 Authorities are required to charge depreciation, impairment and revaluation losses on all HRA properties calculated in accordance with proper practices, including non-dwelling properties. There is no specification in the Item 8 Determination that depreciation should be debited to the HRA Income and Expenditure Statement (or equally that it should be reversed out in the Movement on the HRA Statement). However, it has become generally accepted since the introduction of resource accounting into the HRA in 2005/06 that statutory requirements can be satisfied on a ‘no net impact’ basis – debits and credits expected by proper practices (but not specified in legislation) can be made to the HRA provided that they are subsequently reversed out and replaced by statutory amounts in the calculation of the HRA Balance.

K15 Chief financial officers (CFOs) are responsible for deciding the most appropriate method of estimating depreciation for their authority’s assets and shall have regard to the provisions of paragraphs 4.1.2.37 to 4.1.2.44 of the Code when determining the method to be used in the estimation of depreciation for HRA properties.


K16 The depreciation charge in respect of HRA dwellings is not an actual charge against the HRA Balance. It is reversed out in the Movement on the HRA Statement, and replaced with HRA Minimum Revenue Provision, via an appropriation to or from the Capital Adjustment Account.

K17 Impairment and revaluation losses on HRA assets will be debited to the HRA Income and Expenditure Statement in accordance with the general provisions of the Code – ie where there is no balance or an insufficient balance of accumulated gains on the Revaluation Reserve for the relevant assets. Impairment and revaluation losses will be reversed out in the Movement on the HRA Statement, to avoid having an impact on rent levels, with the compensating credit matched by a debit from the Capital Adjustment Account.

Debt Management Costs

K18 The Item 8 Determination requires authorities to estimate the proportion of their total debt management expenses, calculated in accordance with proper practices, attributable to the HRA. There are no specific proper practices in this area, leaving authorities with a general duty to devise their own reasonable basis.


K19 The Code does not specify a line for movements on the allowance for bad debts, but they cannot comfortably be fitted under any of the other expenditure headings. Authorities should therefore insert their own line at this point in the HRA Income and Expenditure Statement for increases or decreases in the allowance.

Sums Directed by the Welsh Government that are Expenditure in Accordance with the Code

K20 This is a reserve item that allows account to be taken of any future directions that the Welsh Government might make. It is not currently expected that authorities will generally need to debit any amounts against this line from the Code. Where items classified as Revenue Expenditure Funded from Capital under Statute are being charged to the HRA in accordance with the Item 8 Determination, these should if possible be assigned to one of the specific expenditure headings. However, if there is no good fit, then the expenditure should be debited against this line.

Dwelling Rents

K21 This item comprises the income of the authority receivable for the year from rents in respect of houses within the HRA. The Code’s requirement for this item to be disclosed ‘gross’ means that the total should include rent remitted by way of rebate, which is financed by a compensating credit from the Council Fund. (There is no requirement in the Code for authorities to disclose the split of rent income between amounts due from tenants and rent rebate, but practitioners might decide that it would be helpful to do so.)

K22 The requirement for a ‘gross’ disclosure means that the figure should exclude any amounts in respect of rent foregone on void properties.


Non-dwelling Rents

K23 This item comprises the income of the authority receivable for the year from rents and charges in respect of other property within the account, such as garages, shops, public houses, etc.


K24 This represents the income of the authority for the year in respect of services or facilities provided by the authority in connection with the provision of houses and other property within the account. It includes additional charges for such things as furniture, board and laundry facilities, but will exclude payments for welfare services that are outside the scope of the HRA.

Contributions Towards Expenditure

K25 This item covers contributions received, mainly from the Council Fund and outside bodies or persons, towards expenditure which has been properly debited to the HRA, such as those in respect of benefits or amenities provided under housing powers but shared by the wider community. Where service charges are received from leaseholders, they can be applied to net down the relevant expenditure, rather than credited as part of this item, provided that the expenditure was incurred directly on the leasehold property and can be identified separately from that incurred on HRA property.

HRA Subsidy Receivable

K26 HRA Subsidy is paid to meet any shortfall between expenditure and income on a government model of each authority’s HRA (the notional HRA). The HRA Subsidy calculation is based on annual assumptions covering the rents each authority will charge (guideline rents), allowances for management and maintenance (M&M), the HRA’s share of debt financing and management costs, calculated in accordance with a formula, and other specific items of expenditure and income.

Major Repairs Allowance

K27 The Code does not specify a line for the credit of the Major Repairs Allowance (MRA) to the HRA Income and Expenditure Statement. However, grant receivable should be credited to the statement in accordance with the general requirements for capital grants set out in section 2.3 of the Code – ie when no conditions remain to be satisfied in relation to the receipt of the grant (see section C of Module 2). Thus, the MRA is presented within the Taxation and Non-specific Grant Income and Expenditure heading, which is included in the HRA illustration at paragraph K8 below the cost of services line.

The credit will be reversed out to the Major Repairs Reserve in the Movement on the HRA Statement.


Sums Directed by the Welsh Government that are Income in Accordance with Proper Practices

K28 This is a reserve item that allows account to be taken of any future directions that the Secretary of State might make. It is not currently expected that authorities will need to credit any amounts against this line from the Code.


K29 The Net Cost of Services in the HRA Income and Expenditure Statement is generally prepared in accordance with the total cost requirements of the Service Reporting Code of Practice. However, the statutory requirement for the HRA to be debited with the expenditure actually incurred by the authority during the year means that an additional debit is required to charge the HRA with elements of Corporate and Democratic Core costs that can either:



K30 The debit is made to the HRA Income and Expenditure Statement after a sub-heading for the Net Cost of HRA Services included in the Comprehensive Income and Expenditure Statement, so that the entry for the HRA in the latter can be read across straightforwardly to the HRA Statement. However, the aggregate HRA Net Cost of Services is then presented to include this debit.

HRA Share of Other Amounts included in the Whole Authority Net Expenditure of Continuing Operations but Not Allocated to Specific Services

K31 In addition to a share of Corporate and Democratic Core costs that can be allocated to the HRA, there may be other items of expenditure excluded from total cost that should reasonably be debited against the HRA Net Cost of Services in order to satisfy statutory requirements. Consideration should be given in particular to elements of Non Distributed Costs, eg past service costs and settlements relating to post-employment benefits that can fairly be related to HRA activity.


K32 The principles for recognising gains and losses on the sale of non-current assets in the HRA Income and Expenditure Statement are the same as those for the authority as a whole – see section E of Module 4. However, there are two transactions specific to the HRA that need particular consideration in determining whether assets are treated as held for sale or surplus assets within Property, Plant and Equipment:

� Right-to-buy sales – dwellings will be transferred to Assets Held for Sale once an authority determines that it has become highly probable that they will be sold, as the disposals will meet the conditions in paragraph 4.9.2.13 and 4.9.2.14 of the Code to the extent that a tenant’s actions in initiating a sale allows the authority to meet them.

� Stock transfers – stock awaiting transfer will also be accounted for as Assets Held for Sale in accordance with the conditions in paragraph 4.9.2.13 and 4.9.2.14 of the Code, as the


transfer will normally be on terms that are usual and customary for sales of such assets that preclude active marketing.


K33 Statutory provisions will determine the extent to which interest payable and similar charges (eg premiums payable on the early redemption of debt) have an impact on the HRA Balance for any financial year. However, paragraph 3.5.3.1 of the Code requires that the HRA Income and Expenditure Statement should include an HRA share of operating expenditure included in the Comprehensive Income and Expenditure Statement. In addition to any premium write-offs, the latter should where material include adjustments to reflect effective interest rates for particular loan types rather than contractual amounts payable for the year.

K34 An authority should determine a reasonable basis for identifying the share of these corporate costs that is attributable to the HRA. This will then be reconciled to the statutory debit in the Movement on the HRA Statement.


K35 Statutory provisions will determine the extent to which interest and investment income have an impact on the HRA Balance for any financial year. However, paragraph 3.5.3.1 of the Code requires that the HRA Income and Expenditure Statement should include an HRA share of operating income included in the Comprehensive Income and Expenditure Statement.

K36 An authority should determine a reasonable basis for identifying the share of this income that is attributable to the HRA. This will then be reconciled to the statutory credit in the Movement on the HRA Statement.


K37 Allocations to the HRA of a share of the authority’s overall IAS 19 pensions interest cost will require a reliable basis of apportionment.


K38 The HRA may receive grants or contributions (eg developer contributions) to support expenditure on HRA assets. In the whole authority Comprehensive Income and Expenditure Statement these are included under the Taxation and Non-specific Grant Income and Expenditure heading. This treatment should also be adopted for the HRA Income and Expenditure Statement. Any credits should be reversed out in the Movement on the HRA Statement, to the Capital Grants Unapplied Account or the Capital Adjustment Account – see also K27 in relation to the Major Repairs Allowance.

Movement on the HRA StatementK39 The overall objectives for Movement on the HRA Statement and the general principles for

its construction are the same as those generally for the Movement in Reserves Statement, into which it is consolidated. The statement takes the outturn on the HRA Income and Expenditure Statement and reconciles it to the surplus or deficit for the year on the HRA


Balance, calculated in accordance with the requirements of the Local Government and Housing Act 1989.

K40 An illustrative example of the Movement on the HRA Statement is provided below.


20XX/YY 20YY/ZZ

£000s £000s £000s


2,160

2,055 Surplus or (deficit) for the year on the HRA Income and Expenditure Statement (see paragraph K8 above)

5,069


(2,639)

1,019 Net increase or (decrease) before transfers to or from reserves

2,430




3,590

K41 Paragraph 3.5.3.3 of the Code requires further analysis to be provided (either on the face of the Movement on the HRA Statement or in notes) of the lines for:


� transfers to or from (earmarked) reserves.

K42 The analysis should as a minimum contain the following items (to the extent that they are relevant).

Item Comments

Difference between interest payable and similar charges including amortisation of premiums and discounts determined in accordance with the Code and those determined in accordance with statute

See paragraphs K35 to K36 of this module for an explanation as to when an entry against this item might be required.


Item Comments


This line will cover the posting of the Major Repairs Allowance to the Major Repairs Reserve.

Where any accruals for holiday pay and other accumulating compensated absences have been made in the HRA Income and Expenditure Statement, they will be reversed out here.

Back pay in relation to equal pay settlements that have been charged to the HRA might also be adjusted here in accordance with statutory provisions for financing the expenditure.


This line reverses out the gains and losses recognised in the HRA Income and Expenditure Statement, with three separate elements:

� a debit for the sale proceeds – credited to the Capital Receipts Reserve

� a credit for the carrying amount of assets – debited to the Capital Adjustment Account

� a credit back from the Capital Receipts Reserve credit for disposal costs that qualify to be met from the resulting capital receipts.

HRA share of contributions to or from the Pensions Reserve




Sums directed by the Welsh Government to be debited or credited to the HRA that are not expenditure or income in accordance with the Code



This line will cover the requirement to reverse out depreciation, impairment and revaluation losses and items classified as Revenue Expenditure Funded from Capital under Statute that were debited to Net Cost of HRA Services in the HRA Income and Expenditure Statement. Where any credits have been made for capital grants they will also be reversed out here.

This line is then used for charging the HRA’s loans fund principal contribution for the year. The debit entry is matched with a credit in the Capital Adjustment Account.


Item Comments

Transfer to/from Housing Repairs Account

The Code requires the actual cost of repairs carried out in the year to be debited to the HRA Income and Expenditure Statement, effectively consolidating any Housing Repairs Account that an authority might operate. This entry reconciles the bottom line of the HRA Balance to the contribution that the authority has determined to make to the repairs account for the year. For example, if the actual repairs for the year were £22.3m but the authority had determined to make a contribution of £21.85m for the year, this line would be a £450,000 credit, representing the overall reduction on the balance of the repairs account.

Transfer to/from the Council Fund This line would be used exceptionally where consent has been given for a transfer between the HRA and the Council Fund.

Disclosure RequirementsK43 Paragraph 3.5.4.1 of the Code confirms the statutory status of the HRA as a memorandum


K44 The specific requirements in paragraph 3.5.4.2 of the Code for notes to the HRA financial statements are:

4) The number and types of dwelling in the authority’s housing stock.

5) The amount of rent arrears (excluding amounts collectable on behalf of other agencies) and the aggregate Balance Sheet provision in respect of uncollectable debts.

6) A summary of total capital expenditure on land, houses and other property within the authority’s HRA during the financial year, broken down according to the following sources of funding:

a) borrowing

b) the Capital Receipts Reserve

c) revenue contributions (ie the debit under Item 2 of Part II of Schedule 4 to the Local Government and Housing Act 1989)

d) the Major Repairs Reserve.

7) A summary of total capital receipts from disposals of land, houses and other property within the authority’s HRA during the financial year.

8) The total charge for depreciation for the land, houses and other property within the authority’s HRA, and the charges for depreciation for:

a) operational assets, comprising:

� dwellings

� other land and buildings, and

b) non-operational assets.


9) The value of, and an explanation of, any impairment charges [or revaluation losses] for the financial year in respect of land, houses and other property within the authority’s HRA, calculated in accordance with proper practices.

10) The value of, and an explanation of, any charge calculated in accordance with proper practices in respect of revenue expenditure funded from capital under statute attributable to the HRA.

11) An explanation of the HRA share of contributions to or from the Pensions Reserve.

L HOUSING REVENUE ACCOUNT (SCOTLAND)

Introduction and Statutory BackgroundL1 The Housing (Scotland) Act 1987 provides the statutory framework for the housing accounts

of Scottish local authorities. Part X of the 1987 Act requires a local authority to keep a Housing Revenue Account (HRA) of the income and expenditure for each year in respect of the houses, buildings and land specified in Part I of Schedule 15.

L2 Part X of the 1987 Act and Schedule 15 thereto make significant provisions relevant to the preparation of the financial statements:

� Section 203(1) – housing authorities have a duty to keep an HRA.

� Section 203(5) – the HRA must be kept in accordance with Part II of Schedule 15 regarding debits, credits and supplementary provisions.

� Section 204 – the Scottish Government has the power to limit General Fund contributions to HRA.

� Schedule 15 – housing authorities have a duty to avoid a deficit in the HRA – if there is a deficit a General Fund contribution must be made equal to the deficit.

� Schedule 15 – the Scottish Government may decide that items of income or expenditure, either generally or of a specific category, shall be included or excluded from the HRA.

� Schedule 15 – with the consent of the Scottish Government a housing authority may exclude or include any items of income or expenditure in the HRA.

� Schedule 15 – the Scottish Government may direct rectification of the account if it is of the opinion that items of income or expenditure have not been, or have been improperly, credited or debited in the HRA.

Guidance on the implications of these provisions for the preparation of the HRA is given below.

L3 The operation of the HRA in terms of statutory debits and credits is governed by Part II of Schedule 15 of the 1987 Act and will include:

Income

� Dwelling rents: income receivable from standard rents.

� Services and other charges: income receivable from charges to tenants under section 211 of the 1987 Act.


� Housing Support Grant: eligible authorities receive an amount to be credited to the HRA, calculated according to the relevant housing support grant order.

Expenditure

� Expenditure on repairs, maintenance and management: relating to houses and other property to which the account relates.

� Capital financing costs: the loan charges which the authority is liable to pay in respect of money borrowed for the purpose of providing, improving and repairing houses and property as prescribed in the Schedule.

� Bad debts and voids: arrears of rent written off as irrecoverable and income receivable from any houses during any period in the year when they were not let. Credits for write-offs received and reductions in provisions should be shown as income.

L4 Paralleling the treatment for the council’s wider operations, the transactions relating to the HRA have been separated into two statements:



As the Movement on the HRA Statement incorporates the surplus or deficit on the HRA Income and Expenditure Statement, it effectively meets the statutory requirement to include the HRA as a single statement in the Statement of Accounts.

L5 The scope of the statements is expanded to include a number of items of income and expenditure that are not specified in the 1987 Act but which would constitute proper practices, particularly in relation to capital accounting and retirement benefits. Although the items are not specified in paragraph L4, it has generally been accepted in the development of the Code’s provisions that statutory requirements can be satisfied on a ‘no net impact’ basis – debits and credits expected by proper practices (but not specified in legislation) can be made to the HRA Income and Expenditure Statement provided that they are subsequently reversed out and replaced by statutory amounts in the calculation of the HRA Balance in the Movement on the HRA Statement.

The HRA Income and Expenditure StatementL6 Paragraph 3.5.3.1 of the Code contains requirements for the presentation of an HRA



L7 The general principles for the construction of the HRA Income and Expenditure Statement are the same as those for the Comprehensive Income and Expenditure Statement, set out in section F of this module, except for:


� the insertion of an additional subsection that adds additional expenditure to the Net Cost of HRA Services recognised in accordance with SeRCOP, so that the HRA receives a complete allocation of corporate services, including the identifiable share of the Corporate and Democratic Core and Non Distributed Costs (see paragraphs L26 to L28 of this module)


L8 An illustrative example of the HRA Income and Expenditure Statement is provided below. For completeness, the example includes the full range of lines set out in the Code, including some that are mutually exclusive – where an authority has no entries against a particular line, it should be omitted from the published statement.


20XX/YY 20YY/ZZ

£000s £000s £000s

Expenditure

(21,935) Repairs and maintenance (22,333)

(15,048) Supervision and management (15,589)


(12,570)

(371) Impairment of debtors (224)

– Rent, rates, taxes and other charges –

– Sums directed by the Minister that are expenditure in accordance with IFRS

–

– Other expenditure –


Income



5,458 Housing Support Grant 7,653

290 Leasehold service charges 250

151 Charges for welfare services 175

20 Hostels 18

279 Other income 284

– Sums directed by the Minster that are income in accordance with IFRS

–


11,936 Net Expenditure or Income of HRA Services as included in the Comprehensive Income and Expenditure Statement

14,837


20XX/YY 20YY/ZZ

£000s £000s £000s


(329)

(49) HRA share of other amounts included in the whole authority Net Expenditure of Continuing Operations but not allocated to specific services

(53)


14,455






– Capital grants and contributions receivable

2,055 Surplus (deficit) for the year on HRA services 5,069

Repairs and Maintenance

L9 This line covers the expenditure of the authority for the year in respect of the repair and maintenance of houses and other property within the account. It should include pension costs of the HRA employees charged to this head on a Code-compliant (IAS 19) basis.

L10 The costs of work to property will be expenditure for capital purposes where they can be added to a non-current assets balance in accordance with the Code. In the context of HRA property, such works might include, for example, re-roofing but not painting or the replacement of tiles or broken windows. Where works meet the definition of subsequent expenditure on HRA property, plant and equipment in the Balance Sheet but the authority still wishes the cost to be met from the HRA, material amounts should not be debited against this line but charged to the Movement on the HRA Statement.

Supervision and Management

L11 This line represents the expenditure of the authority for the year in respect of the supervision and management of dwellings, including tenancy management, rent collection, grounds


maintenance, etc. It should include pension costs of the HRA employees charged to this head on a Code-compliant (IAS 19) basis.

Depreciation, Impairments and revaluation losses in relation to Non-current Assets

L12 Authorities are required to charge depreciation, impairment and revaluation losses on all HRA properties calculated in accordance with proper practices, including non-dwelling properties.

L13 There is no specification in the 1987 Act that charges should be debited to the HRA Income and Expenditure Statement (or equally that is should be reversed out in the Movement on the HRA Statement). However, it has become generally accepted that statutory requirements can be satisfied on a ‘no net impact’ basis – debits and credits expected by proper practices (but not specified in legislation) can be made to the HRA provided that they are subsequently reversed out and replaced by statutory amounts in the calculation of the HRA Balance.

L14 Responsible finance officers are responsible for deciding the most appropriate method of estimating depreciation for their authority’s assets and shall have regard to the provisions of paragraphs 4.1.2.37 to 4.1.2.44 of the Code when determining the method to be used in the estimation of depreciation for HRA properties.

L15 The depreciation charge in respect of HRA dwellings is not an actual charge against the HRA Balance. It is reversed out in the Movement on the HRA Statement, and replaced with HRA loans fund principal, via an appropriation from the Capital Adjustment Account.

L16 Impairment and revaluation losses on HRA assets will be debited to the HRA Income and Expenditure Statement in accordance with the general provisions of the Code – ie where there is no balance or an insufficient balance of accumulated gains on the Revaluation Reserve for the relevant assets. Impairment and revaluation losses will be reversed out in the Movement on the HRA Statement to avoid having an impact on rent levels, with the compensating credit coming from the Capital Adjustment Account.


L17 The Code does not specify a line for movements on the allowance for bad debts, but they cannot comfortably be fitted under any of the other expenditure headings. Authorities should therefore insert their own line at this point in the HRA Income and Expenditure Statement for increases or decreases in the allowance.

L18 If an authority disregards the recommendation in paragraph L21 and considers that the 1987 Act required the Comprehensive Income and Expenditure Statement to be credited with notional income for void properties, the rent chargeable on properties whilst they are unoccupied should be debited to this line, neutralising the gross rent credited to Income.

Other Expenditure

L19 This line is used for any other items of expenditure chargeable against the net cost of HRA services. It might include expenditure on such things as grounds maintenance, rentals payable, council tax and NNDR.


Dwelling Rents

L20 This item comprises the income of the authority receivable for the year from rents in respect of houses within the HRA. The Code’s requirement for this item to be disclosed ‘gross’ means that the total should include rent remitted by way of rebate, which is financed by a compensating credit from the General Fund. (There is no requirement in the Code for authorities to disclose the split of rent income between amounts due from tenants and rent rebate, but practitioners might decide that it would be helpful to do so.)

L21 The requirements of the 1987 Act for the HRA to include loss of income receivable from houses that were not let as expenditure might mean that this line should also include notional rents on void properties. The notional loss on voids would then be written out through the bad debt provision line as uncollectable income. However, such a presentation is inconsistent with proper accounting practice and it is recommended that the notional income is not included in the HRA Income and Expenditure Statement. Instead, authorities should disclose losses on void properties as a note to the account.

Non-dwelling Rents

L22 This item comprises the income of the authority receivable for the year from rents and charges in respect of other property within the account, such as garages, shops, public houses, etc.


L23 This represents the income of the authority for the year in respect of services or facilities provided by the authority in connection with the provision of houses and other property within the account. It includes additional charges for such things as furniture, board and laundry facilities, but will exclude payments for welfare services that are outside the scope of the HRA.

Housing Support Grant

L24 This line is credited with the grant receivable from the Scottish Government for the year.

Other Income

L25 This item covers amounts receivable from tenants for services provided to them (eg furniture, board, laundry, heating, etc) and contributions receivable from the General Fund or other parties in respect of amenities provided under housing powers but shared by the wider community (eg playgrounds). The line might also include service charges and other contributions from leaseholders. However, charges could be applied to net down the relevant expenditure, rather than credited as part of this item, provided that the expenditure was incurred directly on the leasehold property and can be identified separately from that incurred on HRA property.


L26 The Net Cost of Services in the HRA Income and Expenditure Statement is generally prepared in accordance with the total cost requirements of the Service Reporting Code of Practice.


However, the statutory requirement for the HRA to be debited with the expenditure actually incurred by the authority during the year means that an additional debit is required to charge the HRA with elements of Corporate and Democratic Core costs that can either:



L27 The debit is made to the HRA Income and Expenditure Statement after a sub-heading for the Net Cost of HRA Services included in the Comprehensive Income and Expenditure Statement, so that the entry for the HRA in the latter can be read across straightforwardly to the HRA Statement. However, the aggregate HRA Net Cost of Services is then presented to include this debit.

HRA Share of Other Amounts included in the Whole Authority Net Cost of Services but Not Allocated to Specific Services

L28 In addition to a share of Corporate and Democratic Core costs that can be allocated to the HRA, there may be other items of expenditure excluded from total cost that should reasonably be debited against the HRA Net Cost of Services in order to satisfy statutory requirements. Consideration should be given in particular to elements of Non Distributed Costs, eg past service costs and settlements relating to post-employment benefits that can fairly be related to HRA activity.


L29 The principles for recognising gains and losses on the sale of non-current assets in the HRA Income and Expenditure Statement are the same as those for the authority as a whole – see section E of Module 4. However, there are two transactions specific to the HRA that need particular consideration in determining whether assets are treated as held for sale or surplus assets within Property, Plant and Equipment:

� Right-to-buy sales – dwellings will be transferred to Assets Held for Sale once an authority determines it has become highly probable that they will be sold, as the disposals will meet the conditions in paragraph 4.9.2.13 of the Code to the extent that a tenant’s actions in initiating a sale allows the authority to meet them.

� Stock transfers – stock awaiting transfer will also be accounted for as Assets Held for Sale in accordance with the conditions in paragraph 4.9.2.13 of the Code, as the transfer will normally be on terms that are usual and customary for sales of such assets that preclude active marketing.


L30 Statutory provisions will determine the extent to which interest payable and similar charges (eg premiums payable on the early redemption of debt) have an impact on the HRA Balance for any financial year. However, paragraph 3.5.3.1 of the Code requires that the HRA Income and Expenditure Statement should include an HRA share of operating expenditure included in the Comprehensive Income and Expenditure Statement. In addition to any premium write-


offs, the latter should where material include adjustments to reflect effective interest rates for particular loan types rather than contractual amounts payable for the year.

L31 An authority should determine a reasonable basis for identifying the share of these corporate costs that is attributable to the HRA. This will then be reconciled to the statutory debit for loan charges in the Movement on the HRA Statement.


L32 Statutory provisions will determine the extent to which interest and investment income have an impact on the HRA Balance for any financial year. However, paragraph 3.5.3.1 of the Code requires that the HRA Income and Expenditure Statement should include an HRA share of operating income included in the Comprehensive Income and Expenditure Statement.

L33 An authority should determine a reasonable basis for identifying the share of this income that is attributable to the HRA. This will then be reconciled to the statutory credit in the Movement on the HRA Statement.


L34 Allocations to the HRA of a share of the authority’s overall IAS 19 pensions interest cost will require a reliable basis of apportionment.


L35 The HRA may receive grants or contributions (eg developer contributions) to support expenditure on HRA assets. In the whole authority Comprehensive Income and Expenditure Statement these are included under the Taxation and Non-specific Grant Income and Expenditure heading. This treatment should also be adopted for the HRA Income and Expenditure Statement. Any credits should be reversed out in the Movement on the HRA Statement, to the Capital Grants Unapplied Account or the Capital Adjustment Account.

Movement on the HRA StatementL36 The overall objectives for Movement on the HRA Statement and the general principles for

its construction are the same as those generally for the Movement in Reserves Statement, into which it is consolidated. The statement takes the outturn on the HRA Income and Expenditure Statement and reconciles it to the surplus or deficit for the year on the HRA Balance, calculated in accordance with the requirements of the 1987 Act.

L37 An illustrative example of the Movement on the HRA Statement is provided below.



20XX/YY 20YY/ZZ

£000s £000s £000s


2,160

2,055 Surplus or (deficit) for the year on the HRA Income and Expenditure Statement (see paragraph L8 above)

5,069


(2,639)

1,019 Net increase or (decrease) before transfers to or from reserves

2,430




3,590

L38 Paragraph 3.5.3.3 of the Code requires further analysis to be provided (either on the face of the Movement on the HRA Statement or in notes) of the lines for:


� transfers to or from reserves.

L39 The analysis should as a minimum contain the following items (to the extent that they are relevant):


This is a reserve line that will be used in instances where regulations or statutory guidance allow revenue expenditure to be deferred or met from capital resources.


This line reverses out the gains and losses recognised in the HRA Income and Expenditure Statement, with two separate elements:

� a debit for the sale proceeds (net of costs of sale) – credited to the Capital Receipts Reserve

� a credit for the carrying amount of assets – debited to the Capital Adjustment Account.


HRA share of contributions to/from the Pensions Reserve




Sums directed by the Scottish Government Minister to be debited or credited to the HRA that are not expenditure or income in accordance with the Code



This line will cover the requirement to reverse out depreciation, impairment and revaluation losses and items classified as Revenue Expenditure Funded from Capital under Statute that were debited to Net Cost of HRA Services in the HRA Income and Expenditure Statement. Where any credits have been made for capital grants they will also be reversed out here.

This line is then used for charging the HRA’s loans fund principal contribution for the year. The debit entry is matched with a credit in the Capital Adjustment Account.

Transfer to/from the General Fund This line will be used for any credits made from the General Fund to make good a deficit on the HRA.

The Transfers to/from Reserves line in the Movement on the HRA Statement might also include amounts posted to and from statutory funds such as the Capital Fund and the Insurance Fund.

Transfers from the General Fund as directed by the Minister


DisclosuresL40 Paragraph 3.5.4.1 of the Code confirms the statutory status of the HRA as a memorandum


L41 The specific requirements in paragraph 3.5.4.2 of the Code for notes to the HRA financial statements are:

12) The number and types of dwelling in the authority’s housing stock.

13) The amount of rent arrears (excluding amounts collectable on behalf of other agencies) and the provision considered to be necessary in respect of uncollectable debts.


M COLLECTION FUND (ENGLAND)

Introduction M1 Paragraph 3.6.1.1 of the Code requires the inclusion of a Collection Fund Statement within

the Statement of Accounts of every council tax billing authority. The account reflects the statutory requirement contained in section 89 of the Local Government Finance Act 1988 (as amended by the Local Government Finance Act 1992) for billing authorities to establish and maintain a separate fund for the collection and distribution of amounts due in respect of council tax and non-domestic rates (NDR).

M2 There is no requirement for a separate Collection Fund Balance Sheet. Instead, Collection Fund balances are distributed across the Balance Sheets of the billing authority, the Government and precepting authorities according to the provisions of section 2.8 of the Code.

Accounting Policies for the Collection FundM3 The transactions of the Collection Fund are wholly prescribed by legislation. Billing

authorities have no discretion to determine which receipts and payments are accounted for within the fund and which outside. Practitioners will therefore need to be familiar with the legal prescriptions. However, decisions will have to be made in relation to the application of accounting concepts to the prescribed transactions in the calculation of accruals and provisions.

M4 The statutory provisions for Collection Fund accounting are to be found in the following sources:

� Section 90(1) of the 1988 Act: setting out the main types of income from other parties which must be paid directly into the Collection Fund (council tax, NDR, Business Rate Supplements (BRS) receipts, and sums received from precepting authorities and central government to meet a deficit on the fund arising in the previous year).

� Section 90(2) of the 1988 Act: setting out the main types of expenditure which must be made directly from the Collection Fund (council tax precepts (excluding parish precepts), shares of NDR to precepting authorities and central government, distributions of a surplus on the fund arising in the previous year in respect of council tax and NDR, council tax and NDR refunds and payments to BRS levying authorities).

� Section 97 of the 1988 Act: providing for transfers between the General Fund and the Collection Fund in relation to the billing authority’s own demand on the latter.

� Fund Regulations made under section 99 of the 1988 Act: prescribing the timing of transactions specified in the sections of the 1988 Act cited above and arrangements for holding and investing surplus cash belonging to the fund.

� General Specifications and Directions made under sections 90(1), 90(2), 98(4) and 98(5) of the 1988 Act: specifying that interest on Fund investments with other parties, residual community charge receipts, contributions in aid, refunds and adjustments to community charge grant and precepts issued before 1993/94 must be accounted for in the Collection Fund and directing the transactions to be effected between the General Fund and the Collection Fund for the cash flow transfers, reliefs and adjustments, NNDR reliefs and costs of collection and netted off payments made to and from billing and precepting authorities.


� Community Charges Directions: directing the transactions to be effected between the General Fund and the Collection Fund in relation to the billing authority’s financing of a residual deficit or distribution of a residual surplus on community charge transactions.

M5 The effect on the Collection Fund is:

� Shares of non-domestic rating income to major preceptors and a billing authority are paid out of the Collection Fund and credited to the Comprehensive Income and Expenditure Statements of precepting and billing authorities. However, the transactions presented in the Collection Fund Statement are limited to the cash flows permitted by statute for the financial year, whereas each authority will recognise income on a full accruals basis (ie sharing out in full the surplus or deficit on the Collection Fund at the end of the year, even though it will be distributed to or recovered from the authorities in a subsequent financial year).

� The central share (after allowable deductions) of the non-domestic rating income is paid out of the Collection Fund to central government.

� Council tax precepts for major precepting authorities and a billing authority’s demand on the fund are paid out of the Collection Fund and credited to the Comprehensive Income and Expenditure Statements of major precepting and billing authorities. However, as with non-domestic rating income, the transactions presented in the Collection Fund Statement are limited to the cash flows permitted by statute for the financial year, whereas each authority will recognise income on a full accruals basis (ie sharing out in full the surplus or deficit on the Collection Fund at the end of the year, even though it will be distributed to or recovered from the authorities in a subsequent financial year).

� Parish precepts are paid from the General Fund of billing authorities and will be disclosed on the face of the Comprehensive Income and Expenditure Statement.

� Interest is not payable on cash flow transfers between the General Fund and the Collection Fund.

� The year-end surplus or deficit on the Collection Fund is to be distributed between billing and precepting authorities on the basis of estimates of the year-end balance made on 15 January for council tax and 31 January for non-domestic rates.

The Collection Fund StatementM6 Paragraph 3.6.3.1 of the Code contains requirements for the presentation of a Collection Fund

Statement and the inclusion of a description of the purpose of the statement. The Code recommends the following description:

The Collection Fund is an agent’s statement that reflects the statutory obligation for billing authorities to maintain a separate Collection Fund. The statement shows the transactions of the billing authority in relation to the collection from taxpayers and distribution to local authorities and the Government of council tax and non-domestic rates.


M7 Paragraph 3.6.3.1 of the Code then requires the following minimum disclosures in the Collection Fund Statement.

Amounts required by statute to be credited to the Collection Fund

Council tax (showing the amount receivable, net of benefits discounts for prompt payment and transitional relief)

This figure effectively represents the council tax and contributions in lieu for the year (on an accruals basis), and adjustments for earlier years not already taken into account which is actually receivable in the form of cash from taxpayers. Billing authorities will therefore have to determine procedures for the estimation of accruals. The figure excludes amounts receivable in the form of penalties, which should be accounted for in the General Fund.

A clear link should be made between this item and the required note to the statement on the council tax base. The note should contain sufficient information on property banding to give an understanding of the method of setting the charge and the contribution made by different bands to the income for the year. When presenting figures for the tax base, it might be comprehensible to disclose an outturn figure, rather than the estimate used in the calculation of council tax before the start of the year. However, if the two figures are significantly different from each other, disclosure of both may be needed to explain the variation which, in most cases, will have generated a significant surplus or deficit on the fund.

Transfers from the General Fund:

� transitional relief

� discounts for prompt payment

These should be determined in accordance with the Secretary of State’s directions as the total of individual entitlements to reductions in the amounts of council tax payable in the year (subject to adjustments for earlier years not accounted for and for accruals). The net credits made in the Collection Fund should be matched by equal debits to the General Fund. All other transactions in relation to reimbursement by the Government of reliefs granted and the costs of administration should be accounted for in the General Fund.

Non-domestic rates (showing the amount receivable, net of discretionary and mandatory reliefs)

The Code requires separate disclosure of the accrued income collectable from business ratepayers on behalf of major preceptors, the (billing) authority and central government net of discretionary and mandatory reliefs and transitional protection payments.

This item should be linked to the note to the statement required on the total non-domestic rateable value at the year-end and the NDR multiplier for the year. An explanation should be provided where the yield produced by these two figures is significantly different from the figure for NDR income disclosed on the face of the statement.

Transitional protection payments non-domestic rates, if applicable

Calculated in accordance with the requirements for non-domestic rates transitional protection payments.

Income collectable in respect of Business Rate Supplements

The Code requires separate disclosure of the accrued income collectable from Business Rate Supplements payments from ratepayers on behalf of the levying authority (or where the billing authority is also a levying authority). The figure should be presented in accordance with the statutory requirements for income collectable in respect of the provision for non-collection and any reliefs taken into account in calculating the amount payable to the levying authority.


Contributions towards previous year’s Collection Fund deficit – council tax

This item will represent the payments made during the year to clear the deficit on the council tax element of the fund estimated for the previous year on 15 January of that year. The amounts receivable (and the proportions in which they are receivable from billing and precepting authorities) are determined by the fund regulations. Contributions should contain two elements: that attributable to the fund deficit under council tax and the residual deficit on community charge, which is recoverable only from the billing authority (see next item).

Although strictly a departure from the accruals concept, practitioners will follow the Code and account for this item on a cash basis. The arguments for doing so are that the fund regulations make it explicit that the legal liability to recover the deficit does not arise until the following financial year and that to include accruals (so that the Collection Fund Statement has a bottom line of zero) would obscure information about the performance of the fund during the year.

Contributions – adjustment of previous years’ community charges

The figure disclosed will take account of amounts for new debits and adjustments to debits, adjustments to community charge grants and contributions to, or write-backs from, provisions. Separate memorandum accounts should be kept and care should be taken to ensure that the effects of any difference between the Collection Fund surplus or deficit as estimated for the end of any year and the latest estimate of the balance attributable to community charges are properly taken into account. This will require careful analysis of accruals made at that time. It is expected that most of these amounts will now be written off as irrecoverable and very few residual transactions (if any) will have taken place.

Contributions towards previous year’s Collection Fund deficit – non-domestic rates

This item will represent the payments made during the year to clear the deficit on the non-domestic rates element of the fund estimated for the previous year on 31 January of that year. The amounts receivable (and the proportions in which they are receivable from billing and precepting authorities and central government) are determined by regulations.

Although strictly a departure from the accruals concept, practitioners will follow the Code and account for this item on a cash basis. The arguments for doing so are that the fund regulations make it explicit that the legal liability to recover the deficit does not arise until the following financial year and that to include accruals (so that the Collection Fund Statement has a bottom line of zero) would obscure information about the performance of the fund during the year.

Amounts required by statute to be debited to the Collection Fund

Precepts and demands from major preceptors and the authority – council tax

The Collection Fund is required to meet in full during the financial year precepts and demands (for council tax) made on it by precepting authorities and the billing authority. This item will therefore simply comprise the precepts informed to the billing authority and its own demand, determined as required by the 1992 Act before the start of the financial year. Any payments of parish precepts or of interest on late instalments should be accounted for in the billing authority’s General Fund.

The Code requires the major preceptors to be specified individually on the face of the statement.


Shares of non-domestic rating income to major preceptors and the (billing) authority – non-domestic rates

The Collection Fund is required to meet in full, during the financial year, the share of non-domestic rating income that is to be paid to its major precepting authorities and itself in accordance with the proportions set out in regulations. This item will therefore simply comprise the estimate made at the start of the year in accordance with statutory requirements.

The Code requires the major preceptors to be specified individually on the face of the statement.

Payment with respect to central share (including allowable deductions) of the non-domestic rating income to be paid to central government by billing authorities

The Collection Fund is required to meet in full during the financial year the agreed proportion of non-domestic rating income that is to be paid to central government, net of allowable deductions (calculated in accordance with relevant regulations).

This item will therefore comprise the estimate made at the start of the year in accordance with statutory requirements.

Transitional protection payments non-domestic rates, if applicable

Calculated in accordance with the requirements for non-domestic rates transitional protection payments.

Business Rate Supplement:

� payment to levying authority’s Business Rate Supplement Revenue Account

� administrative costs

The payment of Business Rate Supplement to the levying authority’s Business Rate Supplement Revenue Account will be calculated in accordance with the applicable regulations for calculating the payment to be made to the levying authority for each financial year (see Module 2, section B of these Guidance Notes).

Billing authorities are permitted to make a deduction from Business Rate Supplement income to meet administrative expenses (see Module 2, section B of these Guidance Notes).

These requirements also extend to billing authorities that are also levying authorities. The regulations require that BRS revenues are transferred from such authorities’ Collection Funds to their Business Rate Supplement Revenue Account (see Module 2, section B of these Guidance Notes).

Impairment of debts/appeals for council tax:

� write-offs of uncollectable amounts

� allowance for impairment

It is for each authority to determine its own policy for providing for council tax bad debts and assessing the likely outcome of appeals, in accordance with the provisions of chapter seven of the Code. The expected approach to assessing whether impairment has taken place is set out in paragraphs C27 to C32 in Module 7 of these Guidance Notes.

Impairment of debts/appeals for non-domestic rates:

� write-offs of uncollectable amounts

� allowance for impairment

It is for each authority to determine its own policy for providing for non-domestic rates bad debts and assessing the likely outcome of appeals, in accordance with the provisions of chapter seven of the Code. The expected approach to assessing whether impairment has taken place is set out in paragraphs C27 to C32 in Module 7 of these Guidance Notes.


Charge to General Fund for allowable collection costs for non-domestic rates

The billing authority’s allowance for costs of collection and recovery for the year, calculated in accordance with relevant regulations. This sum will be transferred from the Collection Fund to the billing authority’s General Fund.

The debit for costs of collection represents the allowance granted to each billing authority per the applicable regulations, not the actual costs of collection incurred by the billing authority. The latter must be debited to the General Fund, where they will be funded by the credit arising from the debit of the allowance to the Collection Fund.

Other transfers to General Fund in accordance with non-domestic rates regulations, reported separately where transfers are material, eg for each major scheme

Authorities will need to consider the schemes they have and the requirements of the legislation in relation to such schemes.

Contribution towards previous year’s estimated Collection Fund surplus – council tax

This item will represent the payments made during the year to distribute the surplus on the fund estimated for the previous year on 15 January of that year relating to council tax. The amounts payable (and the proportions in which they are payable to billing and precepting authorities) are determined by the fund regulations. Distributions should contain two elements: that attributable to the fund surplus under council tax and the residual deficit on community charge, which is payable only to the billing authority (see next item).

Although strictly a departure from the accruals concept, practitioners will follow the Code and account for this item on a cash basis. The arguments for doing so are that the fund regulations make it explicit that the legal liability to distribute the surplus does not arise until the following financial year and that to include accruals (so that the fund account has a bottom line of zero) would obscure information about the performance of the fund during the year.

Contribution – adjustment of previous years’ community charges

The figure disclosed will take account of amounts for new debits and adjustments to debits, adjustments to community charge grants and contributions to, or write-backs from, provisions. Separate memorandum accounts should be kept and care should be taken to ensure that the effects of any difference between the Collection Fund surplus or deficit as estimated for the end of any year and the latest estimate of the balance attributable to community charges are properly taken into account. This will require careful analysis of accruals made at that time. It is expected that most of these amounts will now be written off as irrecoverable.


Contributions towards previous year’s estimated Collection Fund surplus – non-domestic rates

This item will represent the payments made during the year to distribute the surplus on the fund estimated for the previous year on 31 January of that year relating to non-domestic rates. The amounts payable (and the proportions in which they are payable to billing and precepting authorities and central government) are determined by the fund regulations.

Although strictly a departure from the accruals concept, practitioners will follow the Code and account for this item on a cash basis. The arguments for doing so are that the fund regulations make it explicit that the legal liability to distribute the surplus does not arise until the following financial year and that to include accruals (so that the Collection Fund Statement has a bottom line of zero) would obscure information about the performance of the fund during the year.

Movements on the Collection Fund6

Opening fund Balance (reported separately for council tax, non-domestic rates, business rates supplements and community charges)

Although not an amount required by statute to be credited or debited from the fund balance, the Code requires that the Collection Fund Statement include a balance brought forward on the fund at the start of the year, reported separately for council tax, non-domestic rates, business rates supplements and community charges.

Closing fund balance (reported separately for council tax, non-domestic rates, business rates supplements and community charges)

Although not an amount required by statute to be credited or debited from the fund balance, the Code requires that an accumulated or closing fund balance be presented at the end of the year, reported separately for council tax, non-domestic rates, business rates supplements and community charges.

Movement on fund balance (reported separately for council tax, non-domestic rates, business rates supplements and community charges)

Although the Code does not require an analysis of the fund balance, it would be reasonable to provide a note that splits the balance into its attributable parts. This then allows the parts to be traced to the authority’s Comprehensive Income and Expenditure Statement, which is to be accounted for on a full accruals basis with future cash flows relating to distributions of surpluses or recovery of deficits being recognised when the surpluses/deficits arise.

6

M8 Paragraph 3.6.4.1 of the Code specifies two notes to be provided with the Collection Fund Statement:

� the total non-domestic rateable value at the year-end and the national non-domestic rate multiplier for the year

� the calculation of the council tax base, ie the number of chargeable dwellings in each valuation band (adjusted for dwellings where discounts apply) converted to an equivalent number of band D dwellings.

6. Due to an editorial error in the 2014/15 Code, this heading was incorrectly included as a bullet under ‘Contributions’. This error has been corrected in the online version of the 2014/15 Code and in these Guidance Notes.


N COUNCIL TAX INCOME ACCOUNT AND NON-DOMESTIC RATE ACCOUNT (SCOTLAND)

Council Tax Income Account

Statutory Background

N1 The Local Government Finance Act 1992 introduced the council tax with effect from 1 April 1993. From that date council expenditure, after deducting income from fees and charges, grants, and non-domestic rates, is met from this council tax.

N2 Council tax is payable on any dwelling which is not an exempt dwelling (prescribed by an order made by the Scottish Government). The amount of council tax payable depends on the valuation band of the dwelling.

Accounting Requirements

N3 Paragraph 3.6.3.2 of the Code contains requirements for the presentation of a Council Tax Income Account and the inclusion of a description of the purpose of the Account. The Code recommends the following description:

The Council Tax Income Account (Scotland) shows the gross income raised from council taxes levied and deductions made under Statute. The resultant net income is transferred to the Comprehensive Income and Expenditure Statement of the authority.

N4 The account is required to show:

� gross council tax levied and contributions in lieu

� council tax reduction scheme

� council tax benefits (net of government grant)

� discounts for prompt payment

� other discounts and reductions

� write-off of uncollectable debts and allowance for impairment

� adjustment to previous years’ community charge and council tax

� transfers to General Fund.

N5 Paragraph 3.6.4.1 of the Code specifies two notes to accompany the account:

� The calculation of the council tax base, ie the number of chargeable dwellings in each valuation band (adjusted for dwellings where discounts apply) after providing for non-payment, as an equivalent number of band D dwellings and the level of non-payment provided for.

� An explanation of the nature and actual amount of each charged fixed.

N6 The disclosure notes could usefully include an explanation of the gross charge; exemptions; discounts; and reliefs.


Non-Domestic Rate Account

Statutory Background

N7 Occupiers of non-domestic property pay rates based on the valuation of property within the valuation roll for the area. The non-domestic rate poundage is determined by the Scottish Government.

Accounting Requirements

N8 Paragraph 3.6.3.3 of the Code contains requirements for the presentation of a Non-Domestic Rate Account and the inclusion of a description of the purpose of the account. The Code recommends the following description:

The Non-Domestic Rate Account (Scotland) is an agent’s* statement that reflects the statutory obligation for billing authorities to maintain a separate Non-Domestic Rate Account. The statement shows the gross income from the rates and deductions made under statute. The net income is paid to the Scottish Government as a contribution to the national non-domestic rate pool.

* The Code requires that where Non-domestic Rate Income is retained by the authority (eg under the Business Rates Incentivisation Scheme or Tax Incremental Financing) the statement should be amended to reflect this.

N9 The account is required to show:

� gross rates levied and contributions in lieu (see paragraph N12 below)

� reliefs and other deductions

� payment of interest

� write-offs of uncollectable debts and allowance for impairment

� net non-domestic rate income (sub-total)

� adjustment to previous years’ national non-domestic rates

� total non-domestic rate income (before authority retentions) (sub-total)** (see paragraph N12 below)

� non-domestic rates income retained by the authority (reported separately by each major scheme eg Business Rates Incentivisation Scheme/Tax Incremental Financing) (see paragraph N12 below)

� contribution to national non-domestic rate pool.

** The line ‘total non-domestic rate income (before authority retentions)’ is not specified in the Code for 2014/15 but is included as a recommendation to best demonstrate the split of income in the NDR income account.

N10 Paragraph 3.6.4.1 of the Code specifies two notes to accompany the account:

� analysis of rateable values at the beginning of the year

� an explanation of the nature and amount of each rate fixed.


N11 The account will show the gross income from rates levied for non-domestic property. Deductions from gross income should be shown in respect of valuation appeals, reliefs and exemptions, voids and provision for bad debts.

N12 The line items in paragraph N9 above are further described in guidance provided by LASAAC as follows:

� The line ‘gross rates levied and contributions in lieu’ includes all non-domestic rates levied for the financial year.

� The line ‘total non-domestic rate income (before authority retentions)’ should reflect the audited initial ‘contributable amount’ which is used to determine whether the Business Rate Incentivisation Scheme (BRIS) target has been achieved.

� The line ‘don-domestic rates income retained by authority’ – where BRIS income is identified, a brief note explaining the BRIS scheme may be appropriate, for example: ‘The Business Rate Incentivisation Scheme (BRIS) permits the authority to retain half of the NDR income which exceeds the income target set by the Scottish Government.’ It may also be appropriate to provide a brief disclosure of the final agreed BRIS target.

N13 The authority’s Balance Sheet should show a debtor for the amount of cash collected from NNDR taxpayers that has not yet been paid to the Scottish Government, or a creditor for the amount that has been overpaid to the Scottish Government as at the Balance Sheet date. Where BRIS income is retained by the authority, any related value of NDR debtors should be presented on the authority’s Balance Sheet, not netted off in the net balance with the Scottish Government. More guidance is provided below.

N14 Where a Tax Incremental Financing Scheme is proceeding, or where the non-domestic rate income targets under the Business Rates Incentivisation Scheme (BRIS) have been exceeded, authorities should consider whether an element of non-domestic rate income should be regarded as being income on a ‘principal’ (ie non-agency) basis.

N15 Further guidance regarding the non-domestic rate account has been provided by LASAAC to assist with the presentation of non-domestic rate income, cash and balances in Scottish local government financial statements. This guidance can be found on the LASAAC website.7

Key aspects of the guidance are summarised as follows:

� Non-domestic rate income retained under the BRIS scheme is expected to be treated as principal in nature. Retained BRIS income should only be recognised when the authority is satisfied that the BRIS target for the financial year has been achieved.

� The determinant of whether a council has achieved the BRIS target is based on the audited figures reported in the Non-Domestic Rates Income Return. The BRIS target is set for the accrual-based non-domestic rate income in the financial year and does not differentiate between the ‘rateable year’ that the income relates to. This implies that adjustments for BRIS retained income are not required to be identified to specific rateable years but may be made against the totality of non-domestic rate income transactions and balances for all relevant rateable years.

7. See Example Presentation of Non-Domestic Rates in 2012/13 Financial Statements, Local Authority (Scotland) Accounts Advisory Committee, May 2013.


� It is recommended that NDR debtor balances at the end of the financial year are identified and assigned in the following order:

A Income above the agreed BRIS target. This income would be appropriately split between the authority as principal and the Scottish Government Non-Domestic Rate Pool. The Scottish Government share should be included in the net balance with the Scottish Government Non-Domestic Rate Pool.

Since the BRIS mechanism is not triggered until the BRIS target is met, it is considered that cash collected should initially be notionally allocated (at an aggregate level) to income that is fully administered on behalf of the Scottish Government. Therefore, where any balance of NDR debtors exist on the Balance Sheet, they can first of all be notionally regarded as relating to amounts above the BRIS target (where the BRIS target has been achieved).

B Where, after the above, there are still NDR debtor balances, they may appropriately be regarded as relating to the Non-Domestic Rate Pool (Scottish Government). This will include both a) income which is subsequently re-assigned to the authority (ie the ‘distributable amount’ to be provided to the authority per the annual statutory order for NDR distribution), and b) any income, up to the BRIS target, in excess of that which is submitted to the pool.

� It should be noted that this is a ‘notional’ approach at an aggregate NDR debtor level. From 1 April in the following year, cash should not need to be allocated to opening principal/agency balances, since the BRIS target is effectively ‘reset’ from 1 April and any income collected is due to the Scottish Government until the BRIS target for the new financial year has been achieved. At the end of the new financial year the approach above can be adopted to assign the NDR debtors to the relevant income streams.

� The LASAAC guidance also provides the following example note to the Comprehensive Income and Expenditure Statement (Taxation and Non-specific Grant Income and Expenditure) on non-domestic rate income:

Explanatory Note: Non-Domestic Rate Income as reported under Taxation and Non-specific Grant Income and Expenditure comprises income assigned by the Scottish Government from the national non-domestic rates pool, as well as non-domestic rate income which is not submitted to the national pool but is retained by the council.

20XX/YY

£000

Distribution from Non-Domestic Rate Pool (Note 1) xxx,xxx

Non-Domestic Rate Income retained by authority (BRIS) (Note 2) x,xxx

Non-Domestic Rate Income credited to the Comprehensive Income and Expenditure Statement (Note 3) xxx,xxx

Prior year comparatives should be included.


Note 1: The ‘Distribution from the Non-Domestic Rate Pool’ line should reflect the amount of NDR income from the national pool which is distributed by the Scottish Government to the authority for the financial year. This should be based on the statutory notification issued, including any specific in-year adjustments as notified by the Scottish Government.

Note 2: The retained BRIS income line is expected to agree to the income shown for BRIS in the NDR Account.

Note 3: The total should agree to the amount of Non-Domestic Rate Income credited to the Comprehensive Income and Expenditure Statement under ‘Taxation and Non-specific Grant Income and Expenditure’.

Practitioners should note that the Scottish Government has issued Finance Circular 4/2014 providing guidance on Pilot Tax Incremental Financing (TIF) Projects. The guidance illustrates the funding of expenditure on approved schemes (TIF Debt) from associated non-domestic rate income (TIF Revenue).

O STATEMENTS REPORTING REVIEWS OF INTERNAL CONTROLS OR INTERNAL FINANCIAL CONTROLS8

Development of Governance Reporting O1 Corporate governance has had public prominence in the UK since the publication of the

Cadbury Report in 1992. This addressed those aspects of corporate governance related to financial reporting and accountability. Concern about these issues had been raised by high profile cases such as Maxwell Communications and BCCI.

O2 In 2001, CIPFA and the Society of Local Authority Chief Executives (SOLACE) responded to these developments in the private sector and other parts of the public services by publishing Corporate Governance in Local Government – A Keystone for Community Governance: Framework. This set out a framework of best practice guidance for authorities to develop their own locally adopted codes. An accompanying Guidance Note contained further background to the development of the framework and guidance as to how it might be implemented.

O3 In June 2007, CIPFA/SOLACE published Delivering Good Governance in Local Government: Framework, with CIPFA’s previous published guidance being formally withdrawn and replaced by the new Framework and Guidance Notes. The 2007 guidance recommends that the review of the effectiveness of the system of internal control that local authorities in England, Wales and Northern Ireland are required to undertake by their respective Accounts and Audit Regulations should be reported in an Annual Governance Statement (AGS). It should be noted that The Accounts and Audit (England) Regulations 2011 and The Local Authority Accounts (Scotland) Regulations 2014 require the review of the effectiveness of the system of internal control to be included in the AGS.

8. This section reflects the requirements of The Local Authority Accounts (Scotland) Regulations 2014 for Scottish authorities to prepare an Annual Governance Statement. However, the 2014 Code was published before these regulations were made and so does not reflect these requirements.


O4 In March 2010, CIPFA published an Application Note to the Framework dealing with the CIPFA Statement on the Role of the Chief Financial Officer in Local Government (2010). The Application Note extended the contents of the AGS to include a specific statement on whether the authority’s financial management arrangements conform to the governance requirements of the CIPFA Statement and, where they do not, to explain why and how they deliver the same impact.

O5 Governance issues relating to internal financial controls are particularly pertinent to the preparation and publication of the Statement of Accounts. Since 2002, the base requirement of the Code and its predecessor SORPs has been that authorities include a statement on the system of internal financial control (SIFC) with their Statement of Accounts. Authorities are required to acknowledge their responsibility for internal financial control, but not to provide a statement of the level of assurance actually provided by the authority’s systems during the year.

O6 Whether and how authorities are to apply the Framework and the Application Note in exceeding the minimum Code requirement by preparing an Annual Governance Statement is determined by the statutory arrangements applicable in the different parts of the UK.

Arrangements for 2014/15O7 The following arrangements apply.

England Regulation 4 of The Accounts and Audit (England) Regulations 2011 requires authorities to carry out an annual review of the effectiveness of its system of internal control. Having considered the findings of the review, members are then required to approve an annual governance statement, prepared in accordance with proper practices in relation to internal control. The statement must then be included with the Statement of Accounts. The 2007 Framework is to be treated as proper practice, making publication of an AGS mandatory.

Wales Regulation 4 of The Accounts and Audit (Wales) Regulations 2005 requires authorities to carry out an annual review of the effectiveness of the system of internal control and include a statement on internal control, prepared in accordance with proper practices, within the Statement of Accounts. The 2007 Framework is to be treated as proper practices, making publication of an AGS mandatory.

Northern Ireland Regulation 2A of The Local Government (Accounts and Audit) Regulations (Northern Ireland) 2006 (as amended) requires authorities to carry out an annual review of the effectiveness of the system of internal control. Having considered the findings of the review, members are then required to approve a statement on internal control, prepared in accordance with proper practices in relation to internal control. The statement must then be included within the Statement of Accounts. The 2007 Framework is to be treated as proper practices, making publication of an AGS mandatory.

Scotland The Local Authority Accounts (Scotland) Regulations 2014 (SSI 2014/200) require local authorities to include an AGS as a part of their Annual Accounts. The Code’s minimum requirements specified in paragraphs 3.7.4.6 to 3.7.4.9 relating to SIFCs have been superseded by the issue of the Regulations.


Annual Governance Statement O8 Comprehensive guidance on the preparation and format of AGSs is contained in the 2007

Framework. However, paragraph 3.7.4.2 of the Code contains the following additional reminders for the preparation of the AGS that are not specified in the Framework:

� the AGS should relate to the governance system as it applied during the financial year for the accounts that it accompanies

� significant events or developments relating to the governance system that occur between the year-end and the date on which the Statement of Accounts is signed by the responsible financial officer should be reported

� where an authority undertakes significant activities through group relationships with other entities, the review of the effectiveness of internal control should include the group activities.

O9 In England, Wales and Northern Ireland, the relevant regulations require the AGS to be included with the Statement of Accounts. However, as the AGS ranges much wider than the financial transactions of the authority, practitioners will usually decide that it would be appropriate to place it at either the beginning or the end of the published document. Otherwise, there is a risk that users of the accounts might conclude that the AGS is covered by the true and fair certification by the responsible financial officer and the external auditor.

Recommendations for Reporting and Presenting the Annual Governance Statement with the Financial Statements

O10 The Accounts and Audit (England) Regulations, Regulation 8(2) states ‘the responsible financial officer of a larger relevant body must, no later than 30th June immediately following the end of a year, sign and date the statement of accounts’.

O11 As best practice,* CIPFA recommends that:

� a full draft version of the AGS should accompany the Statement of Accounts which is required to be signed and dated by the end of June by the responsible financial officer

� the AGS should be approved by members meeting as a whole or committee under Regulation 4(3) at the same time as the Statement of Accounts is approved under Regulation 8(3), ie by 30 September.

(* Note this guidance has been produced as applicable for authorities in England but may be adapted for application across all territories.)

O12 CIPFA also recommends that authorities report the Statement of Accounts to members after they have been signed by the responsible financial officer. This will allow them to review the Statement of Accounts, together with the AGS, before or during the audit of the accounts and raise any points that may need to be addressed.

O13 In practice, CIPFA would expect authorities to take the Statement of Accounts to members or committee for this initial consideration at the meeting nearest to the 30 June, or the meeting prior to that at which the accounts will be formally approved, ie near to 30 September, whichever is more suitable.


P EVENTS AFTER THE REPORTING PERIOD

Introduction P1 Events may occur between the year-end and the date that the Statement of Accounts is

issued that might have a bearing upon the financial results of the past year and the financial position presented in the Balance Sheet.

P2 The Code reflects the principles of IAS 10 Events After the Reporting Period, requiring that:

� events after the Balance Sheet date are properly reflected in the Statement of Accounts up to the date that the statement is authorised for issue

� the date is disclosed in the Statement of Accounts, together with the identity of the person who gave the authorisation and a confirmation that this is the date up to which events have been considered.

Authorised for Issue DateP3 The authorised for issue date marks the point beyond which there can be no reasonable

expectation that events could have been taken into consideration in the preparation of the Statement of Accounts.

P4 The identification of such a date for the Statement of Accounts is made difficult because the statutory arrangements for preparation, approval and publication of the statement require the document to be made available publicly or to the auditor. The Code clarifies the issue by specifying the actions that constitute an authorisation to issue.

P5 The Code specifies the following authorised for issue dates for each of the territories in the UK:

Territory Relevant Statutory Provisions Authorised for Issue Dates

England The Accounts and Audit (England) Regulations 2011 (note that The Accounts and Audit (England) Regulations were made after the publication of the Code)

The date of certification by the RFO before the Statement of Accounts is approved by members (required by 30 September).

Wales The Accounts and Audit (Wales) Regulations 2005 (as amended – note that substantial amendments were made to arrangements by SI 2010/683 (W.66)

The date of certification by the RFO:

� before the Statement of Accounts is approved by members (required by 30 September)

� before the statement is published as audited (in the case that either the audit has been certified closed or not )

� before the statement is made available for inspection after the certified conclusion of the audit.


Territory Relevant Statutory Provisions Authorised for Issue Dates

Scotland The Local Authority Accounts (Scotland) Regulations 2014


� immediately after the annual accounts are approved by the authority (or an audit committee or equivalent), the authority must aim to approve the accounts for signature by 30 September).

Northern Ireland

The Local Government (Accounts and Audit) Regulations (Northern Ireland) 2006


� before the Statement of Accounts is approved by members (required by 30 June)

� before the statement is published as audited (in the case that either the audit has been certified closed or not )

� before the statement is made available for inspection after the certified conclusion of the audit.

Adjusting and Non-adjusting EventsP6 Paragraph 3.8.2.1 of the Code defines two types of event after the reporting period:

� adjusting events: those that provide evidence of conditions that existed at the Balance Sheet date – where material, the financial statements and notes in the Statement of Accounts are required to be amended to reflect the impact of the events

� non-adjusting events: those that are indicative of conditions that arose after the Balance Sheet date – the financial statements and notes in the Statement of Accounts are not amended to reflect the events, but additional explanatory notes may need to be added.

P7 Consequently, events arising after the Balance Sheet date should be reflected in the Statement of Accounts if they provide additional evidence of conditions that existed at the Balance Sheet date and materially affect the amounts to be included (adjusting events). Such events could:

� alter an estimate of, for example, debtors, creditors or an allowance for bad debts, previously identified in the accounting processes

� substitute a different actual figure for an estimate, or

� reflect a permanent impairment or betterment in the financial position

but only where the originating event took place prior to the year-end and the amounts are considered material to the accounts.

P8 IAS 10 refers to the need to make changes in the amounts included in the accounts where an event after the reporting period indicates that the application of the going concern concept to a material part of an entity is not appropriate. This will be a very rare situation. Paragraph 3.8.2.8 of the Code suggests that authorities will need to consider the implications where central government has an intention for the services provided by an authority no longer to be provided. However, this will not apply where services are to be transferred to another body.


P9 Examples of adjusting and non-adjusting events are given in IAS 10 and further examples are given below.

Adjusting Events

� the settlement after the reporting period of a court case that confirms that the entity had a present obligation at the end of the reporting period

� the determination after the Balance Sheet of the cost of assets purchased, or the proceeds from assets sold, before the end of the reporting period

� notification after the Balance Sheet date of changes to grant entitlements (other than those caused by a change in grant conditions after the year-end)

� the receipt of information after the Balance Sheet date indicating that an asset was impaired at the end of the reporting period, or that the amount of a previously recognised impairment loss for that asset needs to be adjusted (eg the bankruptcy of a debtor may confirm that the debt was doubtful at the Balance Sheet date)

� the determination after the Balance Sheet date of the amount of profit-sharing or bonus payments, if the entity had a present legal or constructive obligation at the end of the reporting period to make such payments as a result of events before that date

� the discovery of errors or frauds which show that the financial statements are incorrect.

Non-adjusting Events

� major purchases or disposals of assets

� abnormally large changes in asset values after the year-end

� the destruction of a significant property by fire

� announcement of a plan for the closure of a trading unit

� announcing or commencing a major restructuring

� entering into significant commitments or contingent liabilities

� failure of financial systems (unless the failure is longer standing and impacts on data for the year covered by the Statement of Accounts)

� changes to the law and other government provisions that affect assets and liabilities for the year covered by the Statement of Accounts but which were announced after the Balance Sheet date (eg rules for pension schemes)

� new legal cases arising solely out of events that occurred after the year-end.

Disclosure RequirementsP10 Paragraph 3.8.4.1 of the Code requires the following disclosures in relation to events after the

reporting period:

1) The date when the financial statements were authorised for issue and who gave that authorisation. Where the statements may be amended following audit, the authority shall disclose that fact.


2) If an authority receives information after the reporting period, but before the financial statements are authorised for issue, about conditions that existed at the end of the reporting period, the authority shall update disclosures that relate to these conditions, in the light of the new information.

3) For each material category of non-adjusting event after the reporting date:

a) the nature of the event, and

b) an estimate of its financial effect, or a statement that such an estimate cannot be made.

4) Where there is an intention by government to transfer services from the authority to another (for example, as part of local government reorganisation), the authority shall disclose that fact.

Q RELATED PARTY DISCLOSURES

Introduction Q1 The Code’s requirements for the disclosure of related party transactions are relatively

straightforward – information should be provided about the authority’s transactions with its related parties and outstanding balances (to the extent that it is not provided elsewhere). The practical problem is identifying exactly who the related parties are.

Q2 The Code’s provisions are based on IAS 24 Related Party Disclosures, which has the objective of ensuring that an entity’s financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances with such parties. Related parties may enter into transactions that unrelated parties would not, or transact on unusual terms. Where a control relationship exists, the controlling entity can also require the controlled entity to act in ways that are not in its individual interest.

Q3 The impact of the Code’s adoption of IAS 24 is thus to bring to the attention of users of the Statement of Accounts relationships that might materially prevent an authority pursuing its separate interests or that might allow the authority to prevent another party from pursuing its interests independently, with material effect for the authority. Having brought these relationships to the attention of users, transactions are disclosed so that readers can assess where these relationships might have had an effect or could do so in the future.

Applicability to Local GovernmentQ4 In certain areas, users would not reasonably expect an authority to be able to act

independently, whilst in others they would not anticipate that transactions had been carried out other than at arm’s length, whatever the potential for influence. For example:

� Central government is responsible for providing the statutory framework within which local authorities operate, provides the majority of their funding in the form of grants (often conditionally) and prescribes the terms of many of the transactions that authorities have with other parties (eg housing benefits). Even though paragraph 11(c) of IAS 24 states that government departments are not necessarily related parties, the influence is


so substantial that this presumption should be rebutted for local government. However, by the same token, the influence of central government is so pervasive that its impact is likely already to be disclosed adequately in the Statement of Accounts – but note the disclosure requirements for central government activities at paragraph Q22.

� Local authorities are generally restricted by their fiduciary duty to local tax payers from transacting other than at arm’s length (where commercial considerations are relevant), and related parties are proscribed from exerting undue influence over an authority by the statutory framework for the prevention of corruption. This does not mean that related party transactions can be assumed not to have limited the independence of the authority and that disclosure need not be made. However, where relationships exist that have the potential to be corrupt, disclosure needs to be made very carefully to avoid suggesting to readers that corruption should be suspected.

Q5 An additional problem for local authorities in implementing section 3.9 of the Code is that even where there is not a related party relationship, there will be opportunities for authorities to transact other than on a commercial basis, particularly where the authority has powers to give financial assistance to organisations and individuals. The underlying objective of IAS 24 to indicate the potential for departure from independent commercial activity may not be met. Authorities are left to apply their own discretion to make additional disclosures about transactions that have not been negotiated commercially, but where this was for reasons other than a related party relationship.

Q6 Taking into account these differences with the commercial sector, the common framework within which local authorities work does, though, allow the specification of an approach to the Code’s related parties requirements that will be generally applicable, namely:

� identifying the relationships that give rise to related parties

� identifying material transactions and balances with related parties

� considering the presentation and disclosure of relationships, transactions and balances.

Relationships that Give Rise to Related PartiesQ7 Transactions do not in themselves create a related party relationship: there has to be some

element of control or influence by one party over another, or by a third party over the two parties. This is confirmed by the range of entities and individuals that paragraph 3.9.2.7 of the Code includes in its definition of related parties (see paragraph Q8).

Q8 A related party is defined in paragraph 3.9.2.7 of the Code as:

A person or entity that is related to the entity that is preparing its financial statements [section 3.9 of the Code refers to this entity as the ‘reporting entity’].

(a) A person or a close member of that person’s family related to a reporting entity if that person:

(i) has control or joint control over the reporting entity;

(ii) has significant influence over the reporting entity; or

(iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.


(b) An entity is related to a reporting entity if any of the following conditions applies:

(i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

(iii) Both entities are joint ventures of the same third party.

(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

(v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.

(vi) The entity is controlled or jointly controlled by a person identified in (a).

(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). [See paragraph Q13 below.]

Q9 It should be noted that the definition of related party should be read both ways – ie considering the local authority as both a controller/influencer and a controlled/influenced entity.

Q10 In the context of the definition of related parties, significant influence is defined in paragraph 3.9.2.10 of the Code as:

… the power to participate in the financial and operating policy decisions of an authority, but not control those policies.

The most common form of influence is having representation on the board or governing body, but it can also be gained from an ownership interest, from statutory provisions or by agreement.

Q11 Also in the context of the definition of a related party, the Code defines both close members of the family of a person (paragraph 3.9.2.1 of the Code) and key management personnel (paragraph 3.9.2.2 of the Code):

Close members of the family of a person is defined as:

those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include:

� that person’s children and spouse or domestic partner

� children of that person’s spouse or domestic partner, and

� dependants of that person or that person’s spouse or domestic partner

Key management personnel are:

� chief officers (or their equivalent)

� elected members


� chief executive of the authority, and

� other persons having the authority and responsibility for planning, directing and controlling the activities of the authority including the oversight of these activities (ie including supervision of activities with the authority/responsibility to control or influence significantly financial and operating decisions).

Q12 Paragraph 3.9.2.12 of the Code reminds practitioners that the substance of relationships may be more important than their legal form. In considering relationships, consideration must be made as to whether in practice there is control or significant influence, not just a statutory right for this to be the case. Paragraph 11(d) of IAS 24 says that relationships where there is economic dependence are not necessarily related parties. For instance, a voluntary organisation might be wholly reliant on the authority for its funding, which could cause it to have a substantially different relationship with the authority than if it received its funds from a number of sources. In order for the voluntary organisation to be a related party, the authority should have some direct ability to control or influence its financial and operating decisions.

Q13 Where an authority shares key management personnel with another entity or where a member of key management personnel of one entity has significant influence over the other entity, paragraph 3.9.2.13 of the Code confirms that this does not automatically mean that there is a related party relationship. Judgement must be made about whether it is likely that the person would be able to affect the policies of both entities in their mutual dealings. This will certainly be the case, for example, where the authority shares its chief executive with another organisation or a member is the managing director of a company that receives grant funding from the authority. It is less likely where a member or officer is appointed to the board of another organisation for the purpose of representing the authority’s views rather than to be a party to the financial and operating decisions of the organisation.

Q14 Paragraph 3.9.2.14 of the Code confirms that the following are not to be treated as related parties:

� providers of finance (eg banks and building societies lending to the authority; the authority lending to voluntary organisations)

� trade unions

� public utilities

� departments and agencies of a government that does not control, jointly control or significantly influence the reporting entity

� in the course of their normal dealings with an authority by virtue only of those dealings

and:

� entities with which the relationship is solely that of an agency.

Q15 Paragraph 3.9.2.16 of the Code states that in the definition of a related party, an associate includes subsidiaries of the associate and a joint venture includes subsidiaries of the joint venture. Therefore, for example, an associate’s subsidiary and the investor that has significant influence over the associate are related to each other.


Q16 Applying these definitions to local authorities, and focusing on circumstances where an authority might have the potential either to be controlled/influenced or to exert control/influence, the following specific related parties can be identified.

Possible Related Parties Explanation

Control/influence over authority

Central government Has effective control over local authorities, as authorities are incapable of acting without statutory authority. Able to limit possibility of independent action by specifying transactions and the terms on which they are concluded – the Code sets out specific disclosure arrangements for central government (see paragraph Q25).

Members Responsible for the direct control of the policies of the authority.

Officers Certain officers might be in a position to influence significantly the policies of the authority. The scope to influence will be determined by an individual authority’s local scheme of delegation, but is likely to extend to members of the corporate management team (or equivalent) and other officers with independent statutory powers, ie the responsible financial officer and the monitoring officer.

For most authorities, it will be appropriate to treat as ‘key management personnel’ the senior officers identified for individual disclosure in the remuneration note to the accounts (see paragraphs I111 to I152 of this module).

Members of the families and households of members and officers

If family or household members have an ability to influence members or officers, then they might be related parties for the authority. Family/household membership is not sufficient in itself to create a relevant relationship – there must be an expectation of influence. Paragraph 3.9.2.1 of the Code lists specific relationships where expectation could be presumed, but leaves authorities to determine that there might be no such expectation where undue influence is proscribed by statute.

Partnerships, companies, trusts or any entities in which members/officers or a member of their close family or the same household has a controlling interest

Extension of the three preceding categories to entities controlled by key management personnel and their families/households. (Confirmed by the definition of related parties in paragraph 9(f) of IAS 24.)

Other public bodies, eg other local authorities, joint boards, health authorities, entities sponsored by government departments

Subject to common control by central government – the other body might be empowered to transact with the authority on non-commercial terms. Note that the Code has specific disclosure arrangements for central government departments, government agencies, NHS bodies and other local authorities (see paragraph Q25).

Precepting relationships will not qualify, as they are deemed to be agency arrangements.


Possible Related Parties Explanation

School governors Will have the ability to influence an authority’s financial and operating policies through local management of schools. However, individual governors are unlikely to be able to have a material influence unless they act in concert. Disclosure of governors as related parties will not be necessary unless there is evidence of such concerted action.

Control/influence by authority

Pension fund As administrator of the pension fund, the administering authority has direct control of the fund.

Where an authority is not an administrator, the relationship will be an agency one and will not qualify.

Other public bodies, eg other local authorities, joint boards, health authorities, entities sponsored by government departments

Subject to common control by central government – the authority might be empowered to transact with the other body on favourable terms – note that the Code specifies specific disclosure arrangements for central government departments, government agencies, NHS bodies and other local authorities.

Assisted organisations Authorities might form relationships that enable them to influence the financial and operating policies of other organisations, eg the provision of financial assistance to voluntary bodies on terms constraining how the funds are to be administered and applied. The fact that there might be economic dependence on the authority is not sufficient in itself to create a related party relationship.

Controlled companies As majority shareholder, the authority has direct control of the companies.

Will also apply to entities that are controlled through intermediaries, such as subsidiaries of subsidiaries.

Associated companies and joint venture partners

The authority might have the potential to influence the other party through a shareholding or contractual relations. Requires that the influence is sufficient to inhibit the other party from pursuing its separate interests.

Will also apply to entities that are influenced significantly through intermediaries, such as associates of subsidiaries.

Identifying Material Transactions and BalancesQ17 Paragraph 3.9.2.8 of the Code sets out the transaction types that need to be considered for

disclosure:

Transfers of resources or obligations between a reporting entity and a related party, regardless of whether a price is charged.

This definition will cover such things as sales, transfers and exchanges of non-current assets, leases, guarantees, the provision of goods and services, secondment of staff and the making of loans and investments. The proviso about charging is needed, because transactions where a price could have been charged but was not may be significant.


Q18 The Code does not specifically exempt transactions with related parties that an authority has no discretion over. However, practitioners might conclude that there is little advantage in disclosing transactions such as council tax and rates payments and the award of benefits whose terms apply commonly across the local population and for which the related party would have a duty or entitlement if the relationship did not exist.

Materiality

Q19 Paragraph 3.9.2.17 of the Code confirms that authorities should have regard to materiality when identifying related party transactions. However, the definition of materiality in paragraph 3.9.2.5 of the Code makes clear that assessments should be judged ‘in the surrounding circumstances’. This means that materiality should be considered from the point of view of both parties to the transaction. For instance, a grant of £10,000 by the authority to a company whose managing director is a member would normally not be material for the authority but may be fundamentally important to the financial health of the company.

Q20 Consequently, in assessing the materiality of transactions, the considerations may be different depending on whether the authority is constraining or being constrained:

� Control/influence over the authority: ultimately, the focus is on the potential for the independent action of the authority to have been restricted with a material effect on the value of transactions or balances – however, the extent to which a related party might seek to exert significant influence will depend on the materiality of transactions to that other party. Consequently, a transaction that would otherwise be immaterial to an authority will need to be disclosed because readers could reasonably expect that its importance for the related party would influence the relationship.

� Control/influence by the authority: the focus is on the potential for the authority to have control or influence over the independent action of the related party such that there is a material effect on the authority’s transactions and balances.

Practicalities of Identifying Transactions

Q21 Although the preceding discussion gives the impression that related parties is a complex area, the ultimate practical impact on an authority preparing the note to the accounts may be minimal. Where an authority has sound arrangements for corporate governance, the relevant information will probably already be recorded in registers, member databases, etc. The Code requirements should not place any additional burden on an authority over and above its general responsibilities for good governance.

Q22 The practical steps required for identifying material transactions might comprise:

� Central government – material transactions are generally disclosed elsewhere (grants highlighted in the subjective analysis required for segmental reporting, capital grants and support for capital investment in the capital expenditure note, etc). Consider whether there are any special circumstances where the government might be exerting control, eg exceptional funding that requires the authority to adopt specified policies, interventions in the running of services – if material, this should be manifest already. Also note the specific disclosure requirements for government set out in paragraph Q25 below.


� Members – consider reliance on the statutory register of interests, although this requires that the register is up to date and complete and records transactions as well as relationships, otherwise a questionnaire/interview approach might be required.

� Officers – consider reliance on declarations of pecuniary interest (eg in accordance with section 117 of the Local Government Act 1972 for England and Wales), although this requires that the declarations are complete and detail transactions, otherwise a questionnaire/interview approach might be required.

� Families/households – as per members and officers, depending on whether authorities consider that the requirement for there to be an expectation of influence, coupled with the statutory proscription of undue influence, is sufficient to nullify the extension of related parties to families and households.

� Partnerships/companies/trusts with member/officer connections – as for members and officers, although practitioners will need to take care to ensure that those making declarations or responding to questionnaires are aware of the conditions under which organisations with which they are involved need to be considered.

� Other public bodies – as per central government. Consider whether there are any exceptional ‘partnership’ arrangements where one partner has operational influence over the other – if material, this should be manifest already. Also note the specific disclosure requirements for government set out in paragraph Q25 below.

� Pension fund – the statutory arrangements for pension funds should mean that an administering authority’s transactions with a fund are clearly identifiable.

� Assisted organisations – requires review of those parts of the authority that provide financial assistance to other organisations, eg grants to social care organisations and recreational bodies. Discussion with the responsible accountant might be sufficient to establish any organisations where both the level of funding and the operational conditions applied to the financial assistance give the authority effective influence over the other party.

� Controlled companies – information already required to be collected for the note to the Balance Sheet on interests in companies.

� Associated companies and joint ventures – information for associated companies is already required to be collected for the note to the Balance Sheet. The requirement does not extend to joint ventures, but the information should be collectable through the same mechanisms as for associated companies.

Presentation and Disclosure of Relationships, Transactions and Balances

Q23 Paragraph 3.9.4.1 of the Code requires the following disclosures in the notes to the accounts:

a) the description of the nature of the related party relationships

b) the amount of transactions that have occurred

c) the amount of outstanding balances.


Q24 The Code makes the following stipulations in relation to this requirement:

� related party relationships that involve the control of one party by another must always be disclosed, even where there have been no transactions between the parties (or where there are no outstanding balances)

� transactions and balances only need to be disclosed if they are not disclosed elsewhere (eg senior officers’ remuneration and members’ allowances have their own notes) – good practice would be to make cross-reference in the related parties note to where the relevant disclosures can be found, rather than simply to omit the information from the related parties note

� transactions can be aggregated (by type of transaction or by category of related party) but only if this does not obscure individual transactions, sub-categorisations of transactions or connected transactions whose disclosure is necessary for an understanding of their impact on the authority.

Q25 Paragraph 3.9.4.4 of the Code states that the disclosure requirements of paragraph Q23 above do not apply to related party transactions with central government departments, government agencies, NHS bodies and other local authorities. Instead, it requires local authorities to disclose:

� the name of the government (ie UK Government, Scottish Government, Welsh Government or Northern Ireland Assembly) and the fact that the government exerts significant influence through legislation and grant funding

� the following information in sufficient detail to enable users of the reporting entity’s financial statements to understand the effect of related party transactions on its financial statements:

a) the nature and amount of each individually significant transaction, and

b) for other transactions that are collectively, but not individually, significant, a qualitative or quantitative indication of their extent.

Q26 A related party disclosure note is contained in the example accounts appended to Module 3. The example authority has a wide range of related party transactions, but these cannot be guaranteed to cover all the relationships an authority might have. The note also makes effective use of the fact that relevant information is included elsewhere in the example.


APPENDIX

INTRODUCTIONThis appendix to Module 3 provides practitioners with practical guidance to illustrate the requirements of the Code of Practice on Local Authority Accounting in the United Kingdom 2014/15. It also includes useful guidance to assist CFOs and other senior staff in the presentation of their financial statements.

This appendix includes the following three sections:

Section A: Example Financial Statements and Notes to the Accounts for Local Authorities 2014/15This section presents an example set of Financial Statements with Notes to the Accounts for the 2014/15 year. The example has been prepared to illustrate the requirements of the Code of Practice on Local Authority Accounting in the United Kingdom 2014/15.

Scope and Limitations of the Example Financial Statements

The example is not guaranteed to provide a definite interpretation of the Code’s provisions or to contain all the disclosures that individual authorities might need to make in order to give a true and fair view of their own financial position and performance. This document should not be treated as a template for the preparation of the Statement of Accounts.

The following points should be noted by practitioners:

� The example has been prepared to meet the minimum requirements of the Code – no supplementary disclosures are included.

� No consideration has been made of materiality – the Code requirements only apply where disclosure would be material and omissions or summaries might be possible for individual authorities in areas where the example has detailed analyses.

� For the purposes of providing comprehensive illustrations of the individual notes required, the example is not fully consistent internally. The narrative in several of the notes may be contradictory or contain mutually exclusive statements when compared with other notes, but with the objective of providing the fullest effective disclosure for that particular note.

� The example does not cover the following:

– prior period adjustments

– correction of errors

– combination of public sector bodies (previously described as machinery of government changes).

� Disclosure of the effect of changes in accounting estimates potentially applies to all estimated figures but is covered in the example only by illustration in the note for Property, Plant and Equipment.


� The example does not include an HRA, Collection Fund, Business Rate Supplement Revenue or Pension Fund Accounts – illustrations are provided in the relevant sections of the Guidance Notes.

� The example does not include group accounts – example group financial statements are included in Accounting for Collaboration in Local Government (CIPFA, 2014).

� The ordering of the contents in Section A is not definitive. The four main financial statements are required to be given equal prominence (paragraph 3.4.2.18 of the Code) and the notes are to be presented in a systematic manner (paragraph 3.4.2.79 of the Code). In the example illustration, the notes have been ordered first to the extent that they illustrate lines in the financial statements and then to follow the order in which the disclosure requirement is included in the Code. This is for ease of reference to the source material in the Code and may not be appropriate for individual authorities.

Section B: Example Financial Statements and Notes to the Accounts for Local Authorities 2014/15 (Alternative Presentation) This section provides alternative presentations for a number of the financial statements and disclosures included in Section A that authorities may wish consider. Practitioners should note that the scope and limitations of the Example Financial Statements set out above are equally applicable to the alternative presentations in Section B.

Section C: How to Tell the Story: Local Authority Financial Statements (Second Edition)This section consists of the How to Tell the Story publication and is provided to help CFOs and other senior staff present their financial statements to members and other key stakeholders by explaining how the formats can be used to convey key information.


SECTION A

Example Financial Statements and Notes to the Accounts for

Local Authorities 2014/15

CONTENTS � Movement in Reserves Statement

� Comprehensive Income and Expenditure Statement

� Balance Sheet

� Cash Flow Statement

� Note 1 Accounting Policies

� Note 2 Accounting Standards Issued, Not Adopted

� Note 3 Critical Judgements in Applying Accounting Policies

� Note 4 Assumptions Made about the Future and Other Major Sources of Estimation Uncertainty

� Note 5 Material Items of Income and Expense

� Note 6 Events After the Balance Sheet Date

� Note 7 Adjustments between Accounting Basis and Funding Basis under Regulations

� Note 8 Transfers to/from Earmarked Reserves

� Note 9 Other Operating Expenditure

� Note 10 Financing and Investment Income and Expenditure

� Note 11 Taxation and Non-specific Grant Income and Expenditure

� Note 12 Property, Plant and Equipment

� Note 13 Heritage Assets

� Note 14 Investment Properties

� Note 15 Intangible Assets

� Note 16 Financial Instruments

� Note 17 Inventories

� Note 18 Construction Contracts

� Note 19 Debtors

� Note 20 Cash and Cash Equivalents


� Note 21 Assets Held for Sale

� Note 22 Creditors

� Note 23 Provisions

� Note 24 Usable Reserves

� Note 25 Unusable Reserves

� Note 26 Operating Activities

� Note 27 Investing Activities

� Note 28 Financing Activities

� Note 29 Amounts Reported for Resource Allocation Decisions

� Note 30 Acquired and Discontinued Operations

� Note 31 Trading Operations

� Note 32 Agency Services

� Note 33 Road Charging Schemes

� Note 34 Pooled Budgets

� Note 35 Members’ Allowances

� Note 36 Officers’ Remuneration

� Note 37 External Audit Costs

� Note 38 Dedicated Schools Grant

� Note 39 Grant Income

� Note 40 Related Parties

� Note 41 Capital Expenditure and Capital Financing

� Note 42 Leases

� Note 43 Private Finance Initiatives (PFI)1 and Similar Contracts

� Note 44 Impairment Losses

� Note 45 Capitalisation of Borrowing Costs

� Note 46 Termination Benefits

� Note 47 Pension Schemes Accounted for as Defined Contribution Schemes

� Note 48 Defined Benefit Pension Schemes

� Note 49 Contingent Liabilities

� Note 50 Contingent Assets

� Note 51 Nature and Extent of Risks Arising from Financial Instruments

� Note 52 Heritage Assets: Five Year Summary of Transactions

� Note 53 Heritage Assets: Further Information on the Museum’s Collections

� Note 54 Trust Funds

1. Note that these are referred to in the Code as Service Concession Arrangements but are commonly known as Private Finance Initiative (PFI) schemes and will be referred to as such throughout these Example Financial Statements.


Movement in Reserves Statement2,3,4

This statement shows the movement in the year on the different reserves held by the authority, analysed into ‘usable reserves’ (ie those that can be applied to fund expenditure or reduce local taxation) and other reserves. The Surplus or (Deficit) on the Provision of Services line shows the true economic cost of providing the authority’s services, more details of which are shown in the Comprehensive Income and Expenditure Statement. This is different from the statutory amounts required to be charged to the General Fund Balance and the Housing Revenue Account for council tax setting and dwellings rent setting purposes. The Net Increase/Decrease before Transfers to Earmarked Reserves line shows the statutory General Fund Balance and Housing Revenue Account Balance before any discretionary transfers to or from earmarked reserves undertaken by the council.5

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Balance at 31 March 20X0 x x x x x x x x x x

Movement in reserves during 20X0/X1

Surplus or deficit on the provision of services x – x – – – – x – x

Other Comprehensive Income and Expenditure – – – – – – – – x x

Total Comprehensive Income and Expenditure x – x – – – – x x x

Adjustments between accounting basis & funding basis under regulations (Note 7) x – x – x x x x x x

Net Increase or Decrease before Transfers to Earmarked Reserves x – x – x x x x x x

Transfers to/from Earmarked Reserves (Note 8) x x x x – – – – – –

Increase or Decrease in 20X0/X1 x x x x x x x x x x

2. Presentational requirements are contained in paragraphs 3.4.2.39 to 3.4.2.41 of the Code. These paragraphs give authorities options to include more detail on the face of the Statement – this example shows only the minimum requirements. An alternative presentation of the MiRS can be found in the alternative presentation section of these example financial statements.

3. Authorities in Scotland will omit the columns for Earmarked Reserves and the Major Repairs Reserve and substitute a column or columns for statutory funds.

4. The MiRS example financial statement does not include entries for the Business Rate Supplement Revenue Account. Where authorities operate a Business Rate Supplement Revenue Account, appropriate lines will be required to record the statutory adjustments via MiRS to and from the Business Rate Supplement Revenue Account (see Module 2, section B of these Guidance Notes).

5. Recommended text per paragraph 3.4.2.38 of the Code. The Code allows this introductory paragraph to be included in the Explanatory Foreword rather than on the face of the Statement.


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Balance at 31 March 20X1 carried forward x x x x x x x x x x

Movement in Reserves during 20X1/X2

Surplus or deficit on provision of services x – x – – – – x – x

Other Comprehensive Income and Expenditure – – – – – – – – x x

Total Comprehensive Income and Expenditure x – x – – – – x x x

Adjustments between accounting basis & funding basis under regulations (Note 7) x – x – x x x x x –

Net Increase or Decrease before Transfers to Earmarked Reserves x – x – x x x x x x

Transfers to/from Earmarked Reserves (Note 8)

x x x x – – – – – –

Increase or Decrease in 20X1/X2 x x x x x x x x x x

Balance at 31 March 20X2 carried forward x x x x x x x x x x


Comprehensive Income and Expenditure Statement6 Format 1*This statement shows the accounting cost in the year of providing services in accordance with generally accepted accounting practices, rather than the amount to be funded from taxation. Authorities raise taxation to cover expenditure in accordance with regulations; this may be different from the accounting cost. The taxation position is shown in the Movement in Reserves Statement.7

20X0/X1 20X1/X2

Gross Expenditure

Gross Income

Net Expenditure

Gross Expenditure

Gross Income

Net Expenditure

£000 £000 £000 £000 £000 £000

x x x Central services to the public x x x

x x x Cultural and related services x x x

x x x Environmental and regulatory services

x x x

x x x Planning services x x x

x x x Children’s and education services x x x

x x x Highways and transport services x x x

x x x Local authority housing (HRA) x x x

x x x Other housing services x x x

x x x Adult social care x x x

x x x Social care legal settlements (material item)a

x x x

x x x Corporate and democratic core x x x

x x x Non distributed costs x x x

x x x Cost of Servicesb x x x

x x x Other operating expenditure (Note 9) x x x

x x x Financing and investment income and expenditure (Note 10)

x x x

x x x Surplus or deficit of discontinued operations

x x x

x x x Taxation and non-specific grant income and expenditure (Note 11)

x x x

x (Surplus) or Deficit on Provision of Services

x

6. Presentational requirements are contained in paragraphs 3.4.2.44 to 3.4.2.53 of the Code. These paragraphs give authorities options to include more detail on the face of the Statement – this example shows only the minimum requirements. An alternative presentation of the CIES can be found in the alternative presentation section of these example financial statements.

7. Recommended text per paragraph 3.4.2.43 of the Code. The Code allows this introductory paragraph to be included in the Explanatory Foreword rather than on the face of the Statement.


20X0/X1 20X1/X2

Gross Expenditure

Gross Income

Net Expenditure

Gross Expenditure

Gross Income

Net Expenditure

£000 £000 £000 £000 £000 £000

x Surplus or deficit on revaluation of Property, Plant and Equipment assets

x

x Impairment losses on non-current assets charged to the Revaluation Reserve

x

x Surplus or deficit on revaluation of available for sale financial assets

x

x Remeasurement of the net defined benefit liability/(asset)

x

x Other Comprehensive Income and Expenditure

x

x Total Comprehensive Income and Expenditure

x

* Following the amendments to IAS 1 Presentation of Financial Statements (Amendments to Other Comprehensive Income) in the 2013/14 Code, these example financial statements now contain two formats for Other Comprehensive Income and Expenditure in the Comprehensive Income and Expenditure Statement: Format 1 where authorities do not have material items which may be reclassifiable in the Surplus or Deficit on the Provision of Services, and Format 2 where authorities do have these transactions (see F9 to F14 of Module 3).

a Material item disclosed separately per paragraph 3.4.2.53 of the Code.

b Paragraph 3.4.2.44 of the Code describes this as Net Expenditure of Continuing Operations. The Code following the requirements of IAS 1 permits the terminology used to be adapted to the reporting entity and hence cost of services has been used.


Comprehensive Income and Expenditure Statement8 Format 2* (example including the split of the CIES for items that will not be reclassifiable to the Surplus and Deficit on the Provision of Services and those that may be)This statement shows the accounting cost in the year of providing services in accordance with generally accepted accounting practices, rather than the amount to be funded from taxation. Authorities raise taxation to cover expenditure in accordance with regulations; this may be different from the accounting cost. The taxation position is shown in the Movement in Reserves Statement.9

20X0/X1 20X1/X2

Gross Expenditure

Gross Income

Net Expenditure

Gross Expenditure

Gross Income

Net Expenditure

£000 £000 £000 £000 £000 £000




x x x








x x x






x x x


x x x


x x x

8. Presentational requirements are contained in paragraphs 3.4.2.43 to 3.4.2.53 of the Code. These paragraphs give authorities options to include more detail on the face of the statement – this example shows only the minimum requirements. An alternative presentation of the CIES can be found in the alternative presentation section of these example financial statements.

9. Recommended text per paragraph 3.4.2.43 of the Code. The Code allows this introductory paragraph to be included in the Explanatory Foreword rather than on the face of the statement.


20X0/X1 20X1/X2

Gross Expenditure

Gross Income

Net Expenditure

Gross Expenditure

Gross Income

Net Expenditure

£000 £000 £000 £000 £000 £000


x

Items that will not be reclassified to the (Surplus) or Deficit on the Provision of Services


x


x


x

x x

Items that may be reclassified to the (Surplus) or Deficit on the Provision of Services

x Surplus or deficit on revaluation of available for sale financial assetsc

x

x x


x


x

* Following the amendments to IAS 1 Presentation of Financial Statements (Amendments to Other Comprehensive Income) in the 2013/14 Code these example financial statements now contain two formats for Other Comprehensive Income and Expenditure in the Comprehensive Income and Expenditure Statement: Format 1 where authorities do not have material items which may be reclassifiable in the Surplus or Deficit on the Provision of Services and Format 2 where authorities do have these transactions (see F9 to F14 of Module 3).



c Note that IAS 1 also cites the examples of examples of exchange differences on translating foreign operations and cash flow hedges as gains and losses; these have not been included as these are not considered likely transactions for local authorities where they are relevant separate line items would need to be added to the grouping of the items that may be reclassified to the Surplus of Deficit on the Provision of Services.


Balance Sheet10

The Balance Sheet shows the value as at the Balance Sheet date of the assets and liabilities recognised by the authority. The net assets of the authority (assets less liabilities) are matched by the reserves held by the authority. Reserves are reported in two categories. The first category of reserves are usable reserves, ie those reserves that the authority may use to provide services, subject to the need to maintain a prudent level of reserves and any statutory limitations on their use (for example the Capital Receipts Reserve that may only be used to fund capital expenditure or repay debt). The second category of reserves is those that the authority is not able to use to provide services. This category of reserves includes reserves that hold unrealised gains and losses (for example the Revaluation Reserve), where amounts would only become available to provide services if the assets are sold; and reserves that hold timing differences shown in the Movement in Reserves Statement line ‘Adjustments between accounting basis and funding basis under regulations’.11

1 April 20X0a

31 March 20X1 Notes

31 March 20X2

£000 £000 £000

x x Property, Plant and Equipment 12 x

x x Heritage Assets 13 x

x x Investment Property (including held for sale where the authority has opted to disclose this as a separate category) 14 x

x x Intangible Assets 15 x

x x Assets Held for Sale 21 x

x x Long-term Investments 16 x

x x Long-term Debtors 16 x

x x Long-term Assets x

x x Current Held for Sale Investment Propertyc 14 x

x x Current Intangible Assetsc 15 x

x x Short-term Investments 16 x


x x Inventories 17 x

x x Short-term Debtors 19 x

x x Cash and Cash Equivalents 20 x

10. Presentational requirements are contained in paragraphs 3.4.2.55 to 3.4.2.57 of the Code. These paragraphs give authorities options to include more detail on the face of the statement – this example shows only the minimum requirements. An alternative presentation of the Balance Sheet can be found in the alternative presentation section of these example financial statements.



1 April 20X0a

31 March 20X1 Notes

31 March 20X2

£000 £000 £000

x x Current Assets x

x x Cash and Cash Equivalentsb 20 x

x x Short-term Borrowing 16 x

x x Short-term Creditors 22 x

x x Provisionsd 23 x

x x Liabilities in Disposal Groupsd 21 x

x x Donated Assets Accountd 39 x

x x Grants Receipts in Advance – Revenued 39 x

x x Grants Receipts in Advance – Capitald 39 x

x x Current Liabilities x

x x Long-term Creditors 16 x



x x Long-term Borrowing 16 x

x x Other Long-term Liabilities 16 x




x x Long-term Liabilities x

x x Net Assets x

x x Usable Reserves 24 x

x x Unusable Reserves 25 x

x x Total Reserves x

a Opening Balance Sheet for comparative year only required where there have been prior period adjustments. This Opening Balance Sheet will be covered by the requirements of paragraph 3.4.2.60 of the Code to disclose further sub-classifications of the line items. Many of the supporting notes already require this information in comparative figures for reconciliations of opening and closing balances (eg paragraph 4.1.4.3 1) e) of the Code in relation to Property, Plant and Equipment). However, where this is not the case, notes supporting the Balance Sheet may require an additional comparative column in order to disclose the breakdown of balances at 1 April of the comparative year.

b This line has the description Cash and Cash Equivalents as it represents a net deficit on cash; it would have


the description Bank Overdrafts if it contained the gross deficit of cash overdrawn on bank accounts for which there were no offsetting arrangements with the bank.

c These lines are used when the assets in question meet the definition of a current asset – see section G of this module. If any of these items meet the definition of a current asset, they should be separately identified in the relevant note.

d These lines are used when the liabilities in question meet the definition of a current liability – see section G of this module. If any of these items meet the definition of a current liability, they should be separately identified in the relevant note.

Cash Flow Statement12

The Cash Flow Statement shows the changes in cash and cash equivalents of the authority during the reporting period. The statement shows how the authority generates and uses cash and cash equivalents by classifying cash flows as operating, investing and financing activities. The amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of the authority are funded by way of taxation and grant income or from the recipients of services provided by the authority. Investing activities represent the extent to which cash outflows have been made for resources which are intended to contribute to the authority’s future service delivery. Cash flows arising from financing activities are useful in predicting claims on future cash flows by providers of capital (ie borrowing) to the authority.13

20X0/X1 20X1/X2

£000 £000

x Net (surplus) or deficit on the provision of services x

xAdjustments to net surplus or deficit on the provision of services for non-cash movements x

xAdjustments for items included in the net surplus or deficit on the provision of services that are investing and financing activities x

x Net cash flows from Operating Activities (Note 26) x

x Investing Activities (Note 27) x

x Financing Activities (Note 28) x

x Net increase or decrease in cash and cash equivalents x

x Cash and cash equivalents at the beginning of the reporting period x

x Cash and cash equivalents at the end of the reporting period (Note 19) x

12. This example presumes that the indirect method of preparing the statement has been used. Presentational requirements are contained in paragraphs 3.4.2.68 to 3.4.2.70 of the Code. These paragraphs give authorities options to include more detail on the face of the statement – this example shows only the minimum requirements. Where the direct method is used, paragraphs 3.4.2.64 to 3.4.2.66 of the Code set out the presentational requirements.



NOTES TO THE ACCOUNTS14,15

1. ACCOUNTING POLICIES16

i. General PrinciplesThe Statement of Accounts summarises the Authority’s transactions for the 20X1/X2 financial year and its position at the year-end of 31 March 20X2. The Authority is required to prepare an annual Statement of Accounts by [the Accounts and Audit (England) Regulations 2011 the Accounts and Audit (Wales) Regulations 2005/the Local Authority Accounts (Scotland) Regulations 1985], which [those Regulations/those Regulations/section 12 of the Local Government in Scotland Act 2003] require to be prepared in accordance with proper accounting practices. These practices primarily comprise the [Code of Practice on Local Authority Accounting in the United Kingdom 2014/15] and the [Service Reporting Code of Practice 2014/15], supported by International Financial Reporting Standards (IFRS) [and statutory guidance issued under section 12 of the 2003 Act].

The accounting convention adopted in the Statement of Accounts is principally historical cost, modified by the revaluation of certain categories of non-current assets and financial instruments.

ii. Accruals of Income and Expenditure [A]Activity is accounted for in the year that it takes place, not simply when cash payments are made or received. In particular:

� Revenue from the sale of goods is recognised when the Authority transfers the significant risks and rewards of ownership to the purchaser and it is probable that economic benefits or service potential associated with the transaction will flow to the Authority.

� Revenue from the provision of services is recognised when the Authority can measure reliably the percentage of completion of the transaction and it is probable that economic benefits or service potential associated with the transaction will flow to the Authority.

� Supplies are recorded as expenditure when they are consumed – where there is a gap between the date supplies are received and their consumption, they are carried as inventories on the Balance Sheet.

� Expenses in relation to services received (including services provided by employees) are recorded as expenditure when the services are received rather than when payments are made.

14. Paragraph 3.4.2.26 of the Code allows disclosures to be omitted if the information is not material. For completeness, this example includes notes where the figures might not normally be deemed material.

15. Letters after the name of each policy refer to the relevant item in the list of accounting policies in paragraph 3.4.2.82 of the Code (where relevant).

16. Paragraph 3.3.4.1 of the Code requires that an authority disclose information about its accounting policies. It also sets out that accounting policies that relate to statutory accounting requirements are accounted for in the same manner as other accounting policies.


� Interest receivable on investments and payable on borrowings is accounted for respectively as income and expenditure on the basis of the effective interest rate for the relevant financial instrument rather than the cash flows fixed or determined by the contract.

� Where revenue and expenditure have been recognised but cash has not been received or paid, a debtor or creditor for the relevant amount is recorded in the Balance Sheet. Where debts may not be settled, the balance of debtors is written down and a charge made to revenue for the income that might not be collected.

[iii. Acquisitions and Discontinued Operations

Acquired operations [B]

Additional policy detail required where an authority has acquired operations (or transferred operations under combinations of public sector bodies) during the financial year.

Discontinued operations [H]

Additional policy detail required where an authority has discontinued operations (or transferred operations under combinations of public sector bodies) during the financial year.]

iv. Cash and Cash Equivalents [E]Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that mature in [specified period, no more than three months] or less from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value.

In the Cash Flow Statement, cash and cash equivalents are shown net of bank overdrafts that are repayable on demand and form an integral part of the Authority’s cash management.

v. Prior Period Adjustments, Changes in Accounting Policies and Estimates and Errors (K)Prior period adjustments may arise as a result of a change in accounting policies or to correct a material error. Changes in accounting estimates are accounted for prospectively, ie in the current and future years affected by the change and do not give rise to a prior period adjustment.

Changes in accounting policies are only made when required by proper accounting practices or the change provides more reliable or relevant information about the effect of transactions, other events and conditions on the Authority’s financial position or financial performance. Where a change is made, it is applied retrospectively (unless stated otherwise) by adjusting opening balances and comparative amounts for the prior period as if the new policy had always been applied.

Material errors discovered in prior period figures are corrected retrospectively by amending opening balances and comparative amounts for the prior period.


vi. Charges to Revenue for Non-current AssetsServices, support services and trading accounts are debited with the following amounts to record the cost of holding non-current assets during the year:

� depreciation attributable to the assets used by the relevant service

� revaluation and impairment losses on assets used by the service where there are no accumulated gains in the Revaluation Reserve against which the losses can be written off

� amortisation of intangible assets attributable to the service.

The Authority is not required to raise council tax to fund depreciation, revaluation and impairment losses or amortisation. However, it is required to make an annual contribution from revenue towards the reduction in its overall borrowing requirement [equal to either an amount calculated on a prudent basis determined by the authority in accordance with statutory guidance (England and Wales) or loans fund principal charges (Scotland)]. Depreciation, revaluation and impairment losses and amortisation are therefore replaced by the contribution in the General Fund Balance [MRP or loans fund principal], by way of an adjusting transaction with the Capital Adjustment Account in the Movement in Reserves Statement for the difference between the two.

vii. Employee Benefits [I]

Benefits Payable During Employment

Short-term employee benefits are those due to be settled wholly within 12 months of the year-end. They include such benefits as wages and salaries, paid annual leave and paid sick leave, bonuses and non-monetary benefits (eg cars) for current employees and are recognised as an expense for services in the year in which employees render service to the Authority. An accrual is made for the cost of holiday entitlements (or any form of leave, eg time off in lieu) earned by employees but not taken before the year-end which employees can carry forward into the next financial year. The accrual is made at the wage and salary rates applicable in the following accounting year, being the period in which the employee takes the benefit. The accrual is charged to Surplus or Deficit on the Provision of Services, but then reversed out through the Movement in Reserves Statement so that holiday entitlements are charged to revenue in the financial year in which the holiday absence occurs.

Termination Benefits

Termination benefits are amounts payable as a result of a decision by the Authority to terminate an officer’s employment before the normal retirement date or an officer’s decision to accept voluntary redundancy in exchange for those benefits and are charged on an accruals basis to the appropriate service or, where applicable, to the Non Distributed Costs line in the Comprehensive Income and Expenditure Statement at the earlier of when the authority can no longer withdraw the offer of those benefits or when the authority recognises costs for a restructuring.

Where termination benefits involve the enhancement of pensions, statutory provisions require the General Fund Balance to be charged with the amount payable by the Authority to the pension fund or pensioner in the year, not the amount calculated according to the relevant


accounting standards. In the Movement in Reserves Statement, appropriations are required to and from the Pensions Reserve to remove the notional debits and credits for pension enhancement termination benefits and replace them with debits for the cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year-end.

Post-employment Benefits

Employees of the Authority are members of two separate pension schemes:

� The Teachers’ Pension Scheme, administered [by Capita Teachers’ Pensions on behalf of the Department for Education (DfE) or by the Scottish Government].

� The Local Government Pensions Scheme, administered by XYZ County Council.

Both schemes provided defined benefits to members (retirement lump sums and pensions), earned as employees worked for the Authority.

However, the arrangements for the teachers’ scheme mean that liabilities for these benefits cannot ordinarily be identified specifically to the Authority. The scheme is therefore accounted for as if it were a defined contribution scheme and no liability for future payments of benefits is recognised in the Balance Sheet. The Children’s and Education Services line in the Comprehensive Income and Expenditure Statement is charged with the employer’s contributions payable to Teachers’ Pensions in the year.

The Local Government Pension Scheme

The Local Government Scheme is accounted for as a defined benefits scheme:

� The liabilities of the XYZ pension fund attributable to the Authority are included in the Balance Sheet on an actuarial basis using the projected unit method – ie an assessment of the future payments that will be made in relation to retirement benefits earned to date by employees, based on assumptions about mortality rates, employee turnover rates, etc, and projections of projected earnings for current employees.

� Liabilities are discounted to their value at current prices, using a discount rate of x% (based on the indicative rate of return on high quality corporate bond [name of bond or index of bonds]).

� The assets of XYZ pension fund attributable to the Authority are included in the Balance Sheet at their fair value:

– quoted securities – current bid price

– unquoted securities – professional estimate

– unitised securities – current bid price

– property – market value.

The change in the net pensions liability is analysed into the following components:

� Service cost comprising:

– current service cost – the increase in liabilities as a result of years of service earned this year – allocated in the Comprehensive Income and Expenditure Statement to the services for which the employees worked

– past service cost – the increase in liabilities as a result of a scheme amendment or curtailment whose effect relates to years of service earned in earlier years – debited


to the Surplus or Deficit on the Provision of Services in the Comprehensive Income and Expenditure Statement as part of Non Distributed Costs

– net interest on the net defined benefit liability (asset), ie net interest expense for the authority – the change during the period in the net defined benefit liability (asset) that arises from the passage of time charged to the Financing and Investment Income and Expenditure line of the Comprehensive Income and Expenditure Statement – this is calculated by applying the discount rate used to measure the defined benefit obligation at the beginning of the period to the net defined benefit liability (asset) at the beginning of the period – taking into account any changes in the net defined benefit liability (asset) during the period as a result of contribution and benefit payments.

� Remeasurements comprising:

– the return on plan assets – excluding amounts included in net interest on the net defined benefit liability (asset) – charged to the Pensions Reserve as Other Comprehensive Income and Expenditure

– actuarial gains and losses – changes in the net pensions liability that arise because events have not coincided with assumptions made at the last actuarial valuation or because the actuaries have updated their assumptions – charged to the Pensions Reserve as Other Comprehensive Income and Expenditure

� Contributions paid to the XYZ pension fund – cash paid as employer’s contributions to the pension fund in settlement of liabilities; not accounted for as an expense.

In relation to retirement benefits, statutory provisions require the General Fund Balance to be charged with the amount payable by the Authority to the pension fund or directly to pensioners in the year, not the amount calculated according to the relevant accounting standards. In the Movement in Reserves Statement, this means that there are transfers to and from the Pensions Reserve to remove the notional debits and credits for retirement benefits and replace them with debits for the cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year-end. The negative balance that arises on the Pensions Reserve thereby measures the beneficial impact to the General Fund of being required to account for retirement benefits on the basis of cash flows rather than as benefits are earned by employees.

Discretionary Benefits

The Authority also has restricted powers to make discretionary awards of retirement benefits in the event of early retirements. Any liabilities estimated to arise as a result of an award to any member of staff (including teachers) are accrued in the year of the decision to make the award and accounted for using the same policies as are applied to the Local Government Pension Scheme.

[Additional policy detail required where an authority makes material payments in relation to injury awards.]


viii. Events After the Reporting Period [J]Events after the Balance Sheet date are those events, both favourable and unfavourable, that occur between the end of the reporting period and the date when the Statement of Accounts is authorised for issue. Two types of events can be identified:

� those that provide evidence of conditions that existed at the end of the reporting period – the Statement of Accounts is adjusted to reflect such events

� those that are indicative of conditions that arose after the reporting period – the Statement of Accounts is not adjusted to reflect such events, but where a category of events would have a material effect, disclosure is made in the notes of the nature of the events and their estimated financial effect.

Events taking place after the date of authorisation for issue are not reflected in the Statement of Accounts.

ix. Financial Instruments [L]

Financial Liabilities

Financial liabilities are recognised on the Balance Sheet when the Authority becomes a party to the contractual provisions of a financial instrument and are initially measured at fair value and are carried at their amortised cost. Annual charges to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement for interest payable are based on the carrying amount of the liability, multiplied by the effective rate of interest for the instrument. The effective interest rate is the rate that exactly discounts estimated future cash payments over the life of the instrument to the amount at which it was originally recognised.

For most of the borrowings that the Authority has, this means that the amount presented in the Balance Sheet is the outstanding principal repayable (plus accrued interest); and interest charged to the Comprehensive Income and Expenditure Statement is the amount payable for the year according to the loan agreement.

However, the bonds issued by the Authority in 20XX are carried at a lower amortised cost than the outstanding principal and interest is charged at a marginally higher effective rate of interest than the rate payable to bondholders as a material amount of costs incurred in its issue is being financed over the life of the stock.

Gains and losses on the repurchase or early settlement of borrowing are credited and debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement in the year of repurchase/settlement. However, where repurchase has taken place as part of a restructuring of the loan portfolio that involves the modification or exchange of existing instruments, the premium or discount is respectively deducted from or added to the amortised cost of the new or modified loan and the write-down to the Comprehensive Income and Expenditure Statement is spread over the life of the loan by an adjustment to the effective interest rate.

Where premiums and discounts have been charged to the Comprehensive Income and Expenditure Statement, regulations allow the impact on the General Fund Balance to be


spread over future years. The Authority has a policy of spreading the gain or loss over the term that was remaining on the loan against which the premium was payable or discount receivable when it was repaid. [In Scotland the statutory guidance may restrict an authority’s ability to adopt this approach]. The reconciliation of amounts charged to the Comprehensive Income and Expenditure Statement to the net charge required against the General Fund Balance is managed by a transfer to or from the Financial Instruments Adjustment Account in the Movement in Reserves Statement.

[Additional policy detail required where an authority has entered into financial guarantees or has financial liabilities at fair value through profit or loss (such as derivatives).]

Financial Assets

Financial assets are classified into two types:

� loans and receivables – assets that have fixed or determinable payments but are not quoted in an active market

� available-for-sale assets – assets that have a quoted market price and/or do not have fixed or determinable payments.

Loans and Receivables

Loans and receivables are recognised on the Balance Sheet when the Authority becomes a party to the contractual provisions of a financial instrument and are initially measured at fair value. They are subsequently measured at their amortised cost. Annual credits to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement for interest receivable are based on the carrying amount of the asset multiplied by the effective rate of interest for the instrument. For most of the loans that the Authority has made, this means that the amount presented in the Balance Sheet is the outstanding principal receivable (plus accrued interest) and interest credited to the Comprehensive Income and Expenditure Statement is the amount receivable for the year in the loan agreement.

However, the Authority has made a number of loans to voluntary organisations at less than market rates (soft loans). When soft loans are made, a loss is recorded in the Comprehensive Income and Expenditure Statement (debited to the appropriate service) for the present value of the interest that will be foregone over the life of the instrument, resulting in a lower amortised cost than the outstanding principal. Interest is credited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement at a marginally higher effective rate of interest than the rate receivable from the voluntary organisations, with the difference serving to increase the amortised cost of the loan in the Balance Sheet. Statutory provisions require that the impact of soft loans on the General Fund Balance is the interest receivable for the financial year – the reconciliation of amounts debited and credited to the Comprehensive Income and Expenditure Statement to the net gain required against the General Fund Balance is managed by a transfer to or from the Financial Instruments Adjustment Account in the Movement in Reserves Statement.

Where assets are identified as impaired because of a likelihood arising from a past event that payments due under the contract will not be made, the asset is written down and a charge


made to the relevant service (for receivables specific to that service) or the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement. The impairment loss is measured as the difference between the carrying amount and the present value of the revised future cash flows discounted at the asset’s original effective interest rate.

Any gains and losses that arise on the derecognition of an asset are credited or debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement.

Available-for-Sale Assets

Available-for-sale assets are recognised on the Balance Sheet when the Authority becomes a party to the contractual provisions of a financial instrument and are initially measured and carried at fair value. Where the asset has fixed or determinable payments, annual credits to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement for interest receivable are based on the amortised cost of the asset multiplied by the effective rate of interest for the instrument. Where there are no fixed or determinable payments, income (eg dividends) is credited to the Comprehensive Income and Expenditure Statement when it becomes receivable by the Authority.

Assets are maintained in the Balance Sheet at fair value. Values are based on the following principles:

� instruments with quoted market prices – the market price

� other instruments with fixed and determinable payments – discounted cash flow analysis

� equity shares with no quoted market prices – independent appraisal of company valuations.

Changes in fair value are balanced by an entry in the Available-for-Sale Reserve and the gain/loss is recognised in the Surplus or Deficit on Revaluation of Available-for-Sale Financial Assets. The exception is where impairment losses have been incurred – these are debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement, along with any net gain or loss for the asset accumulated in the Available-for-Sale Reserve.

Where assets are identified as impaired because of a likelihood arising from a past event that payments due under the contract will not be made (fixed or determinable payments) or fair value falls below cost, the asset is written down and a charge made to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement. If the asset has fixed or determinable payments, the impairment loss is measured as the difference between the carrying amount and the present value of the revised future cash flows discounted at the asset’s original effective interest rate. Otherwise, the impairment loss is measured as any shortfall of fair value against the acquisition cost of the instrument (net of any principal repayment and amortisation).

Any gains and losses that arise on the derecognition of the asset are credited or debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement, along with any accumulated gains or losses previously recognised in the Available-for-Sale Reserve.


Where fair value cannot be measured reliably, the instrument is carried at cost (less any impairment losses).

[Additional policy detail required where an authority has financial assets at fair value through profit or loss (such as derivatives).]

[Instruments Entered Into Before 1 April 2006

The Authority entered into a number of financial guarantees that are not required to be accounted for as financial instruments. These guarantees are reflected in the Statement of Accounts to the extent that provisions might be required or a contingent liability note is needed under the policies set out in the section on Provisions, Contingent Liabilities and Contingent Assets.]

[x. Foreign Currency Translation [M]Where the Authority has entered into a transaction denominated in a foreign currency, the transaction is converted into sterling at the exchange rate applicable on the date the transaction was effective. Where amounts in foreign currency are outstanding at the year-end, they are reconverted at the spot exchange rate at 31 March. Resulting gains or losses are recognised in the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement.]

xi. Government Grants and Contributions [N]Whether paid on account, by instalments or in arrears, government grants and third party contributions and donations are recognised as due to the Authority when there is reasonable assurance that:

� the Authority will comply with the conditions attached to the payments, and

� the grants or contributions will be received.

Amounts recognised as due to the Council are not credited to the Comprehensive Income and Expenditure Statement until conditions attached to the grant or contribution have been satisfied. Conditions are stipulations that specify that the future economic benefits or service potential embodied in the asset in the form of the grant or contribution are required to be consumed by the recipient as specified, or future economic benefits or service potential must be returned to the transferor.

Monies advanced as grants and contributions for which conditions have not been satisfied are carried in the Balance Sheet as creditors. When conditions are satisfied, the grant or contribution is credited to the relevant service line (attributable revenue grants and contributions) or Taxation and Non-specific Grant Income and Expenditure (non-ringfenced revenue grants and all capital grants) in the Comprehensive Income and Expenditure Statement.

Where capital grants are credited to the Comprehensive Income and Expenditure Statement, they are reversed out of the General Fund Balance in the Movement in Reserves Statement. Where the grant has yet to be used to finance capital expenditure, it is posted to the Capital Grants Unapplied reserve. Where it has been applied, it is posted to the Capital Adjustment


Account. Amounts in the Capital Grants Unapplied reserve are transferred to the Capital Adjustment Account once they have been applied to fund capital expenditure.

[Business Improvement Districts [D]

A Business Improvement District (BID) scheme applies across the whole of the Authority. The scheme is funded by a BID levy paid by non-domestic ratepayers. The Authority acts as principal under the scheme, and accounts for income received and expenditure incurred (including contributions to the BID project) within the relevant services within the Comprehensive Income and Expenditure Statement.]

Community Infrastructure Levy

The Authority has elected to charge a Community Infrastructure Levy (CIL). The levy will be charged on new builds (chargeable developments for the Authority) with appropriate planning consent. The Council charges for and collects the levy, which is a planning charge. The income from the levy will be used to fund a number of infrastructure projects (these include transport, flood defences and schools) to support the development of the area.

CIL is received without outstanding conditions; it is therefore recognised at the commencement date of the chargeable development in the Comprehensive Income and Expenditure Statement in accordance with the accounting policy for government grants and contributions set out above. CIL charges will be largely used to fund capital expenditure. However, a small proportion of the charges may be used to fund revenue expenditure.

xii. Heritage Assets [O]

Tangible and Intangible Heritage Assets (described in this summary of significant accounting policies as heritage assets)17

The Authority’s Heritage Assets are held in the Authority’s Museum. The Museum has four collections of heritage assets which are held in support of the primary objective of the Authority’s Museum, ie increasing the knowledge, understanding and appreciation of the Authority’s history and local area. Heritage Assets are recognised and measured (including the treatment of revaluation gains and losses) in accordance with the Authority’s accounting policies on property, plant and equipment. However, some of the measurement rules are relaxed in relation to heritage assets as detailed below. The accounting policies in relation to heritage assets that are deemed to include elements of intangible heritage assets are also presented below. The Authority’s collections of heritage assets are accounted for as follows.

� Ceramics, Porcelain Work and Figurines – The collection of ceramics, porcelain work and figurines includes tea and dinner

services, ceramic items and important figurines from the history of the local area. These items are reported in the Balance Sheet at insurance valuation which is based on market values. These insurance valuations are updated on an annual basis. Additionally, the key dinner services and items are sampled periodically and reviewed against the relevant antique and ceramic trade press quarterly to ensure the adequacy

17. Required by paragraph 4.10.4.1(c) of the Code.


of the valuation. The ceramics, porcelain work and figurines are deemed to have indeterminate lives and a high residual value; hence the Authority does not consider it appropriate to charge depreciation.

– The collection is relatively static and acquisitions and donations are rare. Where they do occur acquisitions are initially recognised at cost and donations are recognised at valuation ascertained by the museum’s curators in accordance with the authority’s policy on valuations of ceramics, porcelain work and figurines.

� Art Collection – The art collection includes paintings (both oil and watercolour) and sketches and

is reported in the Balance Sheet at market value. There is an annual programme of valuations and the items in the collection are valued by an external valuer. The assets within the art collection are deemed to have indeterminate lives and a high residual value; hence the Authority does not consider it appropriate to charge depreciation.

– Acquisitions are made by purchase or donation. Acquisitions are initially recognised at cost and donations are recognised at valuation with valuations provided by the external valuers and with reference to appropriate commercial markets for the paintings using the most relevant and recent information from sales at auctions.

� Machinery, Equipment and other Artefacts from the Pottery Industry – The Authority considers that obtaining valuations for the vast majority of machinery,

equipment and other artefacts from the pottery industry that are exhibited within the museum would involve a disproportionate cost in comparison to the benefits to the users of the Authority’s financial statements. This is because of the diverse nature of the assets held and the lack of comparable values.18 Other than the small number of items that have been acquired recently, ie those recently bequeathed to the Authority, the Authority does not recognise this collection of heritage assets on the Balance Sheet.

– The Authority’s Museum also holds a collection of pottery ephemera which is not recognised on the Balance Sheet as cost information is not readily available and the Authority believes that the benefits of obtaining the valuation for these items would not justify the cost. Nearly all the items in the collection are believed to have a value of less than £50 and as far as the Authority is aware no individual item is worth more than £500.19 The majority of the collection was acquired by donation over 50 years ago.

– In addition there is a collection of recordings of both sound and amateur film of later life in the pottery industry. Again, the trustees consider that the due to the lack of any comparable market values it is not possible to provide either cost or valuation information for either the intangible or the tangible element of these assets. Consequently, the Authority does not recognise the assets on the Balance Sheet.

– Acquisitions are again initially recognised at cost or, if bequeathed or donated at nil consideration, at valuation. The Authority has been able to value the recent bequest of four slip-casting moulds that are recognised at valuation based on indicative market values achieved at auction for similar examples of such moulds. It has also been able

18. Required by paragraph 4.10.4.1(d) of the Code.

19. Required by paragraph 4.10.4.4 of the Code.


to value the recently donated glazing machine as the same model was sold at a recent auction.

� Archaeology – The Authority does not consider that reliable cost or valuation information can be

obtained for the items held in its archaeological collection. This is because of the diverse nature of the assets held and lack of comparable market values. Consequently, the Authority does not recognise these assets on the balance sheet.20

– The Authority’s acquisitions principally relate to the collection donated in the early twentieth century. The Authority does not (normally) make any purchases of archaeological items.

Heritage Assets – General

The carrying amounts of heritage assets are reviewed where there is evidence of impairment for heritage assets, eg where an item has suffered physical deterioration or breakage or where doubts arise as to its authenticity. Any impairment is recognised and measured in accordance with the Authority’s general policies on impairment – see note xxi in this summary of significant accounting policies. The trustees of the Authority’s Museum will occasionally dispose of heritage assets which have a doubtful provenance or are unsuitable for public display. The proceeds of such items are accounted for in accordance with the Authority’s general provisions relating to the disposal of property, plant and equipment. Disposal proceeds are disclosed separately in the notes to the financial statements and are accounted for in accordance with statutory accounting requirements relating to capital expenditure and capital receipts (again see notes xxv and xxi in this summary of significant accounting policies).

xiii. Intangible Assets [P]Expenditure on non-monetary assets that do not have physical substance but are controlled by the Authority as a result of past events (eg software licences) is capitalised when it is expected that future economic benefits or service potential will flow from the intangible asset to the Authority.

Internally generated assets are capitalised where it is demonstrable that the project is technically feasible and is intended to be completed (with adequate resources being available) and the Authority will be able to generate future economic benefits or deliver service potential by being able to sell or use the asset. Expenditure is capitalised where it can be measured reliably as attributable to the asset and is restricted to that incurred during the development phase (research expenditure cannot be capitalised).

Expenditure on the development of websites is not capitalised if the website is solely or primarily intended to promote or advertise the Authority’s goods or services.

Intangible assets are measured initially at cost. Amounts are only revalued where the fair value of the assets held by the Authority can be determined by reference to an active market. In practice, no intangible asset held by the Authority meets this criterion, and they are therefore carried at amortised cost. The depreciable amount of an intangible asset is



amortised over its useful life to the relevant service line(s) in the Comprehensive Income and Expenditure Statement. An asset is tested for impairment whenever there is an indication that the asset might be impaired – any losses recognised are posted to the relevant service line(s) in the Comprehensive Income and Expenditure Statement. Any gain or loss arising on the disposal or abandonment of an intangible asset is posted to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement.

Where expenditure on intangible assets qualifies as capital expenditure for statutory purposes, amortisation, impairment losses and disposal gains and losses are not permitted to have an impact on the General Fund Balance. The gains and losses are therefore reversed out of the General Fund Balance in the Movement in Reserves Statement and posted to the Capital Adjustment Account and (for any sale proceeds greater than £10,000) the Capital Receipts Reserve.

[xiv. Interests in Companies and Other EntitiesThe Authority has material interests in companies and other entities that have the nature of subsidiaries, associates and jointly controlled entities and require it to prepare group accounts. In the Authority’s own single-entity accounts, the interests in companies and other entities are recorded as financial assets at cost, less any provision for losses.]

xv. Inventories and Long-term Contracts [Q]Inventories are included in the Balance Sheet at the lower of cost and net realisable value. The cost of inventories is assigned using the [FIFO/weighted average] costing formula.

Long-term contracts are accounted for on the basis of charging the Surplus or Deficit on the Provision of Services with the value of works and services received under the contract during the financial year.

[Additional policy detail required where an authority has acquired material balances of inventories for less than their fair value.]

[Additional policy detail required where an authority has acquired material balances of inventories that are held for distribution at no charge or for a nominal charge; or consumption in the production process of goods to be distributed at no charge or for a nominal charge.]

xvi. Investment Property [R]Investment properties are those that are used solely to earn rentals and/or for capital appreciation. The definition is not met if the property is used in any way to facilitate the delivery of services or production of goods or is held for sale.

Investment properties are measured initially at cost and subsequently at fair value, based on the amount at which the asset could be exchanged between knowledgeable parties at arm’s-length. Properties are not depreciated but are revalued annually according to market conditions at the year-end. Gains and losses on revaluation are posted to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement. The same treatment is applied to gains and losses on disposal.


Rentals received in relation to investment properties are credited to the Financing and Investment Income line and result in a gain for the General Fund Balance. However, revaluation and disposal gains and losses are not permitted by statutory arrangements to have an impact on the General Fund Balance. The gains and losses are therefore reversed out of the General Fund Balance in the Movement in Reserves Statement and posted to the Capital Adjustment Account and (for any sale proceeds greater than £10,000) the Capital Receipts Reserve.

xvii. Jointly Controlled Operations and Jointly Controlled AssetsJointly controlled operations are activities undertaken by the Authority in conjunction with other venturers that involve the use of the assets and resources of the venturers rather than the establishment of a separate entity. The Authority recognises on its Balance Sheet the assets that it controls and the liabilities that it incurs and debits and credits the Comprehensive Income and Expenditure Statement with the expenditure its incurs and the share of income it earns from the activity of the operation.

Jointly controlled assets are items of property, plant or equipment that are jointly controlled by the Authority and other venturers, with the assets being used to obtain benefits for the venturers. The joint venture does not involve the establishment of a separate entity. The Authority accounts for only its share of the jointly controlled assets, the liabilities and expenses that it incurs on its own behalf or jointly with others in respect of its interest in the joint venture and income that it earns from the venture.

xviii. Leases [T]Leases are classified as finance leases where the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the property, plant or equipment from the lessor to the lessee. All other leases are classified as operating leases.

Where a lease covers both land and buildings, the land and buildings elements are considered separately for classification.

Arrangements that do not have the legal status of a lease but convey a right to use an asset in return for payment are accounted for under this policy where fulfilment of the arrangement is dependent on the use of specific assets.

The Authority as Lessee

Finance Leases

Property, plant and equipment held under finance leases is recognised on the Balance Sheet at the commencement of the lease at its fair value measured at the lease’s inception (or the present value of the minimum lease payments, if lower). The asset recognised is matched by a liability for the obligation to pay the lessor. Initial direct costs of the Authority are added to the carrying amount of the asset. Premiums paid on entry into a lease are applied to writing down the lease liability. Contingent rents are charged as expenses in the periods in which they are incurred.


Lease payments are apportioned between:

� a charge for the acquisition of the interest in the property, plant or equipment – applied to write down the lease liability, and

� a finance charge (debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement).

Property, Plant and Equipment recognised under finance leases is accounted for using the policies applied generally to such assets, subject to depreciation being charged over the lease term if this is shorter than the asset’s estimated useful life (where ownership of the asset does not transfer to the authority at the end of the lease period).

The Authority is not required to raise council tax to cover depreciation or revaluation and impairment losses arising on leased assets. Instead, a prudent annual contribution is made from revenue funds towards the deemed capital investment in accordance with statutory requirements. Depreciation and revaluation and impairment losses are therefore substituted by a revenue contribution in the General Fund Balance, by way of an adjusting transaction with the Capital Adjustment Account in the Movement in Reserves Statement for the difference between the two.

Operating Leases

Rentals paid under operating leases are charged to the Comprehensive Income and Expenditure Statement as an expense of the services benefitting from use of the leased property, plant or equipment. Charges are made on a straight-line basis over the life of the lease, even if this does not match the pattern of payments (eg there is a rent-free period at the commencement of the lease).

The Authority as Lessor

Finance Leases

Where the Authority grants a finance lease over a property or an item of plant or equipment, the relevant asset is written out of the Balance Sheet as a disposal. At the commencement of the lease, the carrying amount of the asset in the Balance Sheet (whether Property, Plant and Equipment or Assets Held for Sale) is written off to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement as part of the gain or loss on disposal. A gain, representing the Authority’s net investment in the lease, is credited to the same line in the Comprehensive Income and Expenditure Statement also as part of the gain or loss on disposal (ie netted off against the carrying value of the asset at the time of disposal), matched by a lease (long-term debtor) asset in the Balance Sheet.

Lease rentals receivable are apportioned between:

� a charge for the acquisition of the interest in the property – applied to write down the lease debtor (together with any premiums received), and

� finance income (credited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement).

The gain credited to the Comprehensive Income and Expenditure Statement on disposal is not permitted by statute to increase the General Fund Balance and is required to be treated


as a capital receipt. Where a premium has been received, this is posted out of the General Fund Balance to the Capital Receipts Reserve in the Movement in Reserves Statement. Where the amount due in relation to the lease asset is to be settled by the payment of rentals in future financial years, this is posted out of the General Fund Balance to [the Deferred Capital Receipts Reserve (England and Wales) or Capital Receipts Reserve (Scotland)] in the Movement in Reserves Statement. [When the future rentals are received, the element for the capital receipt for the disposal of the asset is used to write down the lease debtor. At this point, the deferred capital receipts are transferred to the Capital Receipts Reserve (England and Wales).]

The written-off value of disposals is not a charge against council tax, as the cost of non-current assets is fully provided for under separate arrangements for capital financing. Amounts are therefore appropriated to the Capital Adjustment Account from the General Fund Balance in the Movement in Reserves Statement.

Operating Leases

Where the Authority grants an operating lease over a property or an item of plant or equipment, the asset is retained in the Balance Sheet. Rental income is credited to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement. Credits are made on a straight-line basis over the life of the lease, even if this does not match the pattern of payments (eg there is a premium paid at the commencement of the lease). Initial direct costs incurred in negotiating and arranging the lease are added to the carrying amount of the relevant asset and charged as an expense over the lease term on the same basis as rental income.

[Additional policy detail required where an authority has material sale and leaseback assets.]

xix. Overheads and Support Services [V]The costs of overheads and support services are charged to those that benefit from the supply or service in accordance with the costing principles of the CIPFA Service Reporting Code of Practice 2014/15 (SeRCOP). The total absorption costing principle is used – the full cost of overheads and support services are shared between users in proportion to the benefits received, with the exception of:

� Corporate and Democratic Core – costs relating to the Authority’s status as a multi-functional, democratic organisation.

� Non Distributed Costs – the cost of discretionary benefits awarded to employees retiring early and impairment losses chargeable on Assets Held for Sale.

These two cost categories are defined in SeRCOP and accounted for as separate headings in the Comprehensive Income and Expenditure Statement, as part of Net Expenditure on Continuing Services.

xx. Property, Plant and Equipment [X]Assets that have physical substance and are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and that are expected to be used during more than one financial year are classified as Property, Plant and Equipment.


Recognition

Expenditure on the acquisition, creation or enhancement of Property, Plant and Equipment is capitalised on an accruals basis, provided that it is probable that the future economic benefits or service potential associated with the item will flow to the Authority and the cost of the item can be measured reliably. Expenditure that maintains but does not add to an asset’s potential to deliver future economic benefits or service potential (ie repairs and maintenance) is charged as an expense when it is incurred.

Measurement

Assets are initially measured at cost, comprising:

� the purchase price

� any costs attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management

� [the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.]

The Authority does not capitalise borrowing costs incurred whilst assets are under construction.

The cost of assets acquired other than by purchase is deemed to be its fair value, unless the acquisition does not have commercial substance (ie it will not lead to a variation in the cash flows of the Authority). In the latter case, where an asset is acquired via an exchange, the cost of the acquisition is the carrying amount of the asset given up by the Authority.

Donated assets are measured initially at fair value. The difference between fair value and any consideration paid is credited to the Taxation and Non-specific Grant Income and Expenditure line of the Comprehensive Income and Expenditure Statement, unless the donation has been made conditionally. Until conditions are satisfied, the gain is held in the Donated Assets Account. Where gains are credited to the Comprehensive Income and Expenditure Statement, they are reversed out of the General Fund Balance to the Capital Adjustment Account in the Movement in Reserves Statement.

Assets are then carried in the Balance Sheet using the following measurement bases:

� infrastructure, community assets and assets under construction – depreciated historical cost

� dwellings – fair value, determined using the basis of existing use value for social housing (EUV–SH)

� all other assets – fair value, determined as the amount that would be paid for the asset in its existing use (existing use value – EUV).

Where there is no market-based evidence of fair value because of the specialist nature of an asset, depreciated replacement cost (DRC) is used as an estimate of fair value.

Where non-property assets that have short useful lives or low values (or both), depreciated historical cost basis is used as a proxy for fair value.

Assets included in the Balance Sheet at fair value are revalued sufficiently regularly to ensure that their carrying amount is not materially different from their fair value at the year-end,


but as a minimum every five years. Increases in valuations are matched by credits to the Revaluation Reserve to recognise unrealised gains. [Exceptionally, gains might be credited to the Surplus or Deficit on the Provision of Services where they arise from the reversal of a loss previously charged to a service.]

Where decreases in value are identified, they are accounted for by:

� where there is a balance of revaluation gains for the asset in the Revaluation Reserve, the carrying amount of the asset is written down against that balance (up to the amount of the accumulated gains)

� where there is no balance in the Revaluation Reserve or an insufficient balance, the carrying amount of the asset is written down against the relevant service line(s) in the Comprehensive Income and Expenditure Statement.

The Revaluation Reserve contains revaluation gains recognised since 1 April 2007 only, the date of its formal implementation. Gains arising before that date have been consolidated into the Capital Adjustment Account.

Impairment

Assets are assessed at each year-end as to whether there is any indication that an asset may be impaired. Where indications exist and any possible differences are estimated to be material, the recoverable amount of the asset is estimated and, where this is less than the carrying amount of the asset, an impairment loss is recognised for the shortfall.

Where impairment losses are identified, they are accounted for by:

� where there is a balance of revaluation gains for the asset in the Revaluation Reserve, the carrying amount of the asset is written down against that balance (up to the amount of the accumulated gains)

� where there is no balance in the Revaluation Reserve or an insufficient balance, the carrying amount of the asset is written down against the relevant service line(s) in the Comprehensive Income and Expenditure Statement.

Where an impairment loss is reversed subsequently, the reversal is credited to the relevant service line(s) in the Comprehensive Income and Expenditure Statement, up to the amount of the original loss, adjusted for depreciation that would have been charged if the loss had not been recognised.

Depreciation

Depreciation is provided for on all Property, Plant and Equipment assets by the systematic allocation of their depreciable amounts over their useful lives. An exception is made for assets without a determinable finite useful life (ie freehold land and certain Community Assets) and assets that are not yet available for use (ie assets under construction).

Deprecation is calculated on the following bases:

� dwellings and other buildings – straight-line allocation over the useful life of the property as estimated by the valuer

� vehicles, plant, furniture and equipment – a percentage of the value of each class of assets in the Balance Sheet, as advised by a suitably qualified officer


� infrastructure – straight-line allocation over 25 years.

Where an item of Property, Plant and Equipment asset has major components whose cost is significant in relation to the total cost of the item, the components are depreciated separately.

Revaluation gains are also depreciated, with an amount equal to the difference between current value depreciation charged on assets and the depreciation that would have been chargeable based on their historical cost being transferred each year from the Revaluation Reserve to the Capital Adjustment Account.

Disposals and Non-current Assets Held for Sale [U]

When it becomes probable that the carrying amount of an asset will be recovered principally through a sale transaction rather than through its continuing use, it is reclassified as an Asset Held for Sale. The asset is revalued immediately before reclassification and then carried at the lower of this amount and fair value less costs to sell. Where there is a subsequent decrease to fair value less costs to sell, the loss is posted to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement. Gains in fair value are recognised only up to the amount of any previously losses recognised in the Surplus or Deficit on Provision of Services. Depreciation is not charged on Assets Held for Sale.

If assets no longer meet the criteria to be classified as Assets Held for Sale, they are reclassified back to non-current assets and valued at the lower of their carrying amount before they were classified as held for sale; adjusted for depreciation, amortisation or revaluations that would have been recognised had they not been classified as Held for Sale, and their recoverable amount at the date of the decision not to sell.

[Additional policy detail required where an authority is carrying a disposal group as an Asset Held for Sale.]

Assets that are to be abandoned or scrapped are not reclassified as Assets Held for Sale.

When an asset is disposed of or decommissioned, the carrying amount of the asset in the Balance Sheet (whether Property, Plant and Equipment or Assets Held for Sale) is written off to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement as part of the gain or loss on disposal. Receipts from disposals (if any) are credited to the same line in the Comprehensive Income and Expenditure Statement also as part of the gain or loss on disposal (ie netted off against the carrying value of the asset at the time of disposal). Any revaluation gains accumulated for the asset in the Revaluation Reserve are transferred to the Capital Adjustment Account.

Amounts received for a disposal in excess of £10,000 are categorised as capital receipts. A proportion of receipts relating to housing disposals (75% for dwellings, 50% for land and other assets, net of statutory deductions and allowances) is payable to the Government [England only]. The balance of receipts is required to be credited to the Capital Receipts Reserve, and can then only be used for new capital investment [or set aside to reduce the Authority’s underlying need to borrow (the capital financing requirement) (England and Wales)]. Receipts are appropriated to the Reserve from the General Fund Balance in the Movement in Reserves Statement.


The written-off value of disposals is not a charge against council tax, as the cost of non-current assets is fully provided for under separate arrangements for capital financing. Amounts are appropriated to the Capital Adjustment Account from the General Fund Balance in the Movement in Reserves Statement.

xxi. Private Finance Initiatives (PFI)21 and Similar Contracts [W]PFI and similar contracts are agreements to receive services, where the responsibility for making available the property, plant and equipment needed to provide the services passes to the PFI contractor. As the Authority is deemed to control the services that are provided under its PFI schemes, and as ownership of the property, plant and equipment will pass to the Authority at the end of the contracts for no additional charge, the Authority carries the assets used under the contracts on its Balance Sheet as part of Property, Plant and Equipment.

The original recognition of these assets at fair value (based on the cost to purchase the property, plant and equipment) was balanced by the recognition of a liability for amounts due to the scheme operator to pay for the capital investment. For Scheme X, the liability was written down by an initial capital contribution of £x.

Non-current assets recognised on the Balance Sheet are revalued and depreciated in the same way as property, plant and equipment owned by the Authority.

The amounts payable to the PFI operators each year are analysed into five elements:

� fair value of the services received during the year – debited to the relevant service in the Comprehensive Income and Expenditure Statement

� finance cost – an interest charge of x% on the outstanding Balance Sheet liability, debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement

� contingent rent – increases in the amount to be paid for the property arising during the contract, debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement

� payment towards liability – applied to write down the Balance Sheet liability towards the PFI operator (the profile of write-downs is calculated using the same principles as for a finance lease)

� lifecycle replacement costs – proportion of the amounts payable is posted to the Balance Sheet as a prepayment and then recognised as additions to Property, Plant and Equipment when the relevant works are eventually carried out.

[Additional policy detail required where the operator is receiving some or all of their consideration through the right to keep third party income.]

21. These are referred to in the Code as service concession arrangements but are commonly known as PFI schemes.


xxii. Provisions, Contingent Liabilities and Contingent Assets

Provisions [Y]

Provisions are made where an event has taken place that gives the Authority a legal or constructive obligation that probably requires settlement by a transfer of economic benefits or service potential, and a reliable estimate can be made of the amount of the obligation. For instance, the Authority may be involved in a court case that could eventually result in the making of a settlement or the payment of compensation.

Provisions are charged as an expense to the appropriate service line in the Comprehensive Income and Expenditure Statement in the year that the authority becomes aware of the obligation, and are measured at the best estimate at the balance sheet date of the expenditure required to settle the obligation, taking into account relevant risks and uncertainties.

When payments are eventually made, they are charged to the provision carried in the Balance Sheet. Estimated settlements are reviewed at the end of each financial year – where it becomes less than probable that a transfer of economic benefits will now be required (or a lower settlement than anticipated is made), the provision is reversed and credited back to the relevant service.

Where some or all of the payment required to settle a provision is expected to be recovered from another party (eg from an insurance claim), this is only recognised as income for the relevant service if it is virtually certain that reimbursement will be received if the authority settles the obligation.

[Additional policy detail required where an authority has made provision for onerous contracts or restructuring costs and where discounting of the amount to settle the obligation is required.]

Provision for Back Pay Arising from Unequal Pay Claims [C]

The Authority has made a provision for the costs of settling claims for back pay arising from discriminatory payments incurred before the Authority implemented its equal pay strategy. However, statutory arrangements allow settlements to be financed from the General Fund in the year that payments actually take place, not when the provision is established. The provision is therefore balanced by an Equal Pay Back Pay Account [England and Wales only] created from amounts credited to the General Fund Balance in the year the provision was made or modified. The balance on the Equal Pay Back Pay Account will be debited back to the General Fund Balance in the Movement in Reserves Statement in future financial years as payments are made. [These arrangements do not apply in Scotland.]

Landfill Allowance and Other Trading Schemes [S]

An example accounting policy for the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme is included in section D of Module 2 in these Guidance Notes.


Contingent Liabilities [G]

A contingent liability arises where an event has taken place that gives the authority a possible obligation whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the authority. Contingent liabilities also arise in circumstances where a provision would otherwise be made but either it is not probable that an outflow of resources will be required or the amount of the obligation cannot be measured reliably.

Contingent liabilities are not recognised in the Balance Sheet but disclosed in a note to the accounts.

Contingent Assets [F]

A contingent asset arises where an event has taken place that gives the authority a possible asset whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the authority.

Contingent assets are not recognised in the Balance Sheet but disclosed in a note to the accounts where it is probable that there will be an inflow of economic benefits or service potential.

xxiii. Reserves [Z]The Authority sets aside specific amounts as reserves for future policy purposes or to cover contingencies [not Scotland]. Reserves are created by appropriating amounts out of the General Fund Balance in the Movement in Reserves Statement. When expenditure to be financed from a reserve is incurred, it is charged to the appropriate service in that year to score against the Surplus or Deficit on the Provision of Services in the Comprehensive Income and Expenditure Statement. The reserve is then appropriated back into the General Fund Balance in the Movement in Reserves Statement so that there is no net charge against council tax for the expenditure.

Certain reserves are kept to manage the accounting processes for non-current assets, financial instruments, retirement and employee benefits and do not represent usable resources for the Authority – these reserves are explained in the relevant policies.

xxiv. Revenue Expenditure Funded from Capital under Statute [AA]Expenditure incurred during the year that may be capitalised under statutory provisions but that does not result in the creation of a non-current asset has been charged as expenditure to the relevant service in the Comprehensive Income and Expenditure Statement in the year. Where the Authority has determined to meet the cost of this expenditure from existing capital resources or by borrowing, a transfer in the Movement in Reserves Statement from the General Fund Balance to the Capital Adjustment Account then reverses out the amounts charged so that there is no impact on the level of council tax.

xxv. VAT [AB]VAT payable is included as an expense only to the extent that it is not recoverable from Her Majesty’s Revenue and Customs. VAT receivable is excluded from income.


[Additional policies required where authorities are unable to recover exempt input tax.]

2. ACCOUNTING STANDARDS THAT HAVE BEEN ISSUED BUT HAVE NOT YET BEEN ADOPTED

For 2014/15 the accounting policy changes that need to be reported will be confirmed in the year-end LAAP Bulletin.22 Appendix C of the 2015/16 Code will provide details of the disclosures required.

3. CRITICAL JUDGEMENTS IN APPLYING ACCOUNTING POLICIES23

In applying the accounting policies set out in Note 1, the Authority has had to make certain judgements about complex transactions or those involving uncertainty about future events. The critical judgements made in the Statement of Accounts are:

� There is a high degree of uncertainty about future levels of funding for local government. However, the Authority has determined that this uncertainty is not yet sufficient to provide an indication that the assets of the Authority might be impaired as a result of a need to close facilities and reduce levels of service provision.

� The Authority has £x deposited with Southern Soul Bank which is in administration. A decision by the courts is being sought as to whether the Authority will have the status of a preferred creditor or whether the amount will have to be written off. Legal advice has been obtained to support a judgement that this status will be secured and that the full amount of the deposit will be repaid.

� The Authority is deemed to control the services provided under the outsourcing agreement for social care provision in six residential homes and also to control the residual value of the homes at the end of the agreement. The accounting policies for PFI schemes and similar contracts have been applied to the arrangement and the homes (valued at £x) are recognised as Property, Plant and Equipment on the Authority’s Balance Sheet.

� A claim has been made against the Authority in relation to the cancellation of a major procurement contract. With the support of the Authority’s legal advisors, it has been assessed that the Authority was entitled to cancel the contract and no provision for possible damages has been made in relation to the claim.

� etc …

22. Required by paragraph 3.3.4.3 of the Code. Disclosure requirements for 2014/15 are expected to be included in the 2015/16 Code (see the consultation draft).



4. ASSUMPTIONS MADE ABOUT THE FUTURE AND OTHER MAJOR SOURCES OF ESTIMATION UNCERTAINTY24

The Statement of Accounts contains estimated figures that are based on assumptions made by the Authority about the future or that are otherwise uncertain. Estimates are made taking into account historical experience, current trends and other relevant factors. However, because balances cannot be determined with certainty, actual results could be materially different from the assumptions and estimates.

The items in the Authority’s Balance Sheet at 31 March 20X2 for which there is a significant risk of material adjustment in the forthcoming financial year are as follows:

Item Uncertainties Effect if Actual Results Differ from Assumptions

Property, Plant and Equipment

Assets are depreciated over useful lives that are dependent on assumptions about the level of repairs and maintenance that will be incurred in relation to individual assets. The current economic climate makes it uncertain that the Authority will be able to sustain its current spending on repairs and maintenance, bringing into doubt the useful lives assigned to assets.

If the useful life of assets is reduced, depreciation increases and the carrying amount of the assets falls.

It is estimated that the annual depreciation charge for buildings would increase by £x for every year that useful lives had to be reduced.

Provisions The Authority has made a provision of £x for the settlement of claims for back pay arising from the Equal Pay initiative, based on the number of claims received and an average settlement amount. It is not certain that all valid claims have yet been received by the Authority or that precedents set by other authorities in the settlement of claims will be applicable.

An increase over the forthcoming year of 10% in either the total number of claims or the estimated average settlement would each have the effect of adding £x to the provision needed.

Pensions Liability

Estimation of the net liability to pay pensions depends on a number of complex judgements relating to the discount rate used, the rate at which salaries are projected to increase, changes in retirement ages, mortality rates and expected returns on pension fund assets. A firm of consulting actuaries is engaged to provide the Authority with expert advice about the assumptions to be applied.

The effects on the net pension liability of changes in individual assumptions can be measured. For instance, a 0.5% increase in the discount rate assumption would result in a decrease in the pension liability of £x.

However, the assumptions interact in complex ways. During 20X1/X2, the Authority’s actuaries advised that the net pensions liability had increased by £x as a result of estimates being corrected as a result of experience and decreased by £x attributable to updating of the assumptions.

24. Required by paragraph 3.4.2.83 of the Code. These disclosures can be made either as a separate note or in the individual notes about relevant items (eg provisions).


Item Uncertainties Effect if Actual Results Differ from Assumptions

Arrears At 31 March 20X2, the Authority had a balance of sundry debtors for £x. A review of significant balances suggested that an impairment of doubtful debts of 5% (£x) was appropriate. However, in the current economic climate it is not certain that such an allowance would be sufficient.

If collection rates were to deteriorate, a doubling of the amount of the impairment of doubtful debts would require an additional £x to set aside as an allowance.

etc …

This list does not include assets and liabilities that have are carried at fair value based on a recently observed market price.

5. MATERIAL ITEMS OF INCOME AND EXPENSE25

[Where items are not disclosed on the face of the Comprehensive Income and Expenditure Statement, the nature and amount of material items should be set out in a note. Examples cited by the Code include disposals of items of property, plant and equipment, disposals of investments and reversals of provisions.]

6. EVENTS AFTER THE REPORTING PERIOD26

The Statement of Accounts was authorised for issue by the Director of Finance on 20 September 20X2. Events taking place after this date are not reflected in the financial statements or notes. Where events taking place before this date provided information about conditions existing at 31 March 20X2, the figures in the financial statements and notes have been adjusted in all material respects to reflect the impact of this information.

The financial statements and notes have not been adjusted for the following events which took place after 31 March 20X2 as they provide information that is relevant to an understanding of the Authority’s financial position but do not relate to conditions at that date:

� The Property, Plant and Equipment line in the Balance Sheet contains valuations totalling £x for three secondary schools in the Witney Hughestown ward of the city. On the night of 10 June 20X2 the three schools were destroyed by a series of arson attacks that required the demolition of the main buildings on each site. The council was not insured for the loss.

� On 11 July 20X2, the red squirrels kept in the Authority’s Conservation Centre escaped from their paddock and gnawed through protective coverings at the neighbouring nuclear waste treatment plant, releasing toxic materials across a small area of the Authority. Legal proceedings for negligence have been started against the Authority. The Authority’s potential liability cannot be estimated reliably, but the litigants assess the overall cost of clearing up the contamination as upwards of £x.




[Note specifically required where an authority has been informed by government of an intention to transfer services from the authority.]

7. ADJUSTMENTS BETWEEN ACCOUNTING BASIS AND FUNDING BASIS UNDER REGULATIONS27,28

It is important to note that the following example is for illustration purposes only and presents a comprehensive list of the possible transactions for the Adjustments between Accounting Basis and Funding Basis under Regulations on a gross basis. As a result, it is not likely to be the most effective form of presentation for this note and for the individual authority’s circumstances. Authorities should consider how best to present the requirements of this note to suit the specific transactions of the authority and to ensure that the note is understandable for the users of the financial statements. This note will also be considered by the Streamlining and Simplification Review and therefore it is anticipated that following the review alternative presentation examples will be produced by the Local Authority Accounting Panel.

This note details the adjustments that are made to the total comprehensive income and expenditure recognised by the Authority in the year in accordance with proper accounting practice to the resources that are specified by statutory provisions as being available to the Authority to meet future capital and revenue expenditure.29 The following sets out a description of the reserves that the adjustments are made against.30

General Fund BalanceThe General Fund is the statutory fund into which all the receipts of an authority are required to paid and out of which all liabilities of the authority are to be met, except to the extent that statutory rules might provide otherwise. These rules can also specify the financial year in which liabilities and payments should impact on the General Fund Balance, which is not necessarily in accordance with proper accounting practice. The General Fund Balance therefore summarises the resources that the Council is statutorily empowered to spend on its services or on capital investment (or the deficit of resources that the Council is required to recover) at the end of the financial year. [For housing authorities – however, the balance is not available to be applied to funding HRA services.]

Housing Revenue Account BalanceThe Housing Revenue Account Balance reflects the statutory obligation to maintain a revenue account for local authority council housing provision in accordance with Part VI of the Local Government and Housing Act 1989. It contains the balance of income and expenditure as


28. The example does not include any statutory adjustments for the Business Rate Supplement Revenue Account. Where an authority operates such an account, appropriate entries will be required (see Module 2, section B of these Guidance Notes).

29. The example includes gross figures for all the statutory adjustments (eg reversing out IAS 19 retirement benefits charges and inserting employer’s contributions). Practitioners have scope to determine whether this detail is necessary or whether the adjustments can be fairly presented as net transactions).



defined by the 1989 Act that is available to fund future expenditure in connection with the Council’s landlord function or (where in deficit) that is required to be recovered from tenants in future years.

Major Repairs ReserveThe Authority is required to maintain the Major Repairs Reserve, which controls an element of the capital resources limited to being used on capital expenditure on HRA assets or the financing of historical capital expenditure by the HRA. The balance shows the capital resources that have yet to be applied at the year-end.

Capital Receipts ReserveThe Capital Receipts Reserve holds the proceeds from the disposal of land or other assets, which are restricted by statute from being used other than to fund new capital expenditure or to be set aside to finance historical capital expenditure. The balance on the reserve shows the resources that have yet to be applied for these purposes at the year-end.

Capital Grants UnappliedThe Capital Grants Unapplied Account (Reserve) holds the grants and contributions received towards capital projects for which the Council has met the conditions that would otherwise require repayment of the monies but which have yet to be applied to meet expenditure. The balance is restricted by grant terms as to the capital expenditure against which it can be applied and/or the financial year in which this can take place.


Usable Reserves

20X1/X2

Gene

ral F

und

Bala

nce

£000

Hou

sing

Rev

enue

Ac

coun

t £0

00

Capi

tal R

ecei

pts

Rese

rve

£000

Maj

or R

epai

rs R

eser

ve

£000

Capi

tal G

rant

s U

napp

lied

£0

00

Mov

emen

t in

Unu

sabl

e Re

serv

es

£000

Adjustments primarily involving the Capital Adjustment Account:

Reversal of items debited or credited to the Comprehensive Income and Expenditure Statement:

Charges for depreciation and impairment of non-current assets x x x

Revaluation losses on Property Plant and Equipment x x

Movements in the fair value of Investment Properties x x

Amortisation of intangible assets x x

Capital grants and contributions applieda x x x

Income in relation to donated assets x x

Revenue expenditure funded from capital under statute x x x

Amounts of non-current assets written off on disposal or sale as part of the gain/loss on disposal to the Comprehensive Income and Expenditure Statement x x x

Insertion of items not debited or credited to the Comprehensive Income and Expenditure Statement:

Statutory provision for the financing of capital investment x x x

Capital expenditure charged against the General Fund and HRA balances x x x

Adjustments primarily involving the Capital Grants Unapplied Account:

Capital grants and contributions unapplied credited to the Comprehensive Income and Expenditure Statement

Application of grants to capital financing transferred to the Capital Adjustment Account

Transfers in respect of Community Infrastructure Levy Receipts x x


Usable Reserves

20X1/X2

Gene

ral F

und

Bala

nce

£000

Hou

sing

Rev

enue

Ac

coun

t £0

00

Capi

tal R

ecei

pts

Rese

rve

£000

Maj

or R

epai

rs R

eser

ve

£000

Capi

tal G

rant

s U

napp

lied

£0

00

Mov

emen

t in

Unu

sabl

e Re

serv

es

£000

Adjustments primarily involving the Capital Receipts Reserve:

Transfer of cash sale proceeds credited as part of the gain/loss on disposal to the Comprehensive Income and Expenditure Statement x x x

Use of the Capital Receipts Reserve to finance new capital expenditure x x

Contribution from the Capital Receipts Reserve towards administrative costs of non-current asset disposals x x x

Contribution from the Capital Receipts Reserve to finance the payments to the Government capital receipts pool x x x

Transfer from Deferred Capital Receipts Reserve upon receipt of cash x x

Adjustments primarily involving the Deferred Capital Receipts Reserve (England and Wales):

Transfer of deferred sale proceeds credited as part of the gain/loss on disposal to the Comprehensive Income and Expenditure Statement x x

Adjustment primarily involving the Major Repairs Reserve:

Reversal of Notional Major Repairs Allowance credited to the HRA x x

Use of the Major Repairs Reserve to finance new capital expenditure x x

Adjustment primarily involving the Financial Instruments Adjustment Account:

Amount by which finance costs charged to the Comprehensive Income and Expenditure Statement are different from finance costs chargeable in the year in accordance with statutory requirements x x


Usable Reserves

20X1/X2

Gene

ral F

und

Bala

nce

£000

Hou

sing

Rev

enue

Ac

coun

t £0

00

Capi

tal R

ecei

pts

Rese

rve

£000

Maj

or R

epai

rs R

eser

ve

£000

Capi

tal G

rant

s U

napp

lied

£0

00

Mov

emen

t in

Unu

sabl

e Re

serv

es

£000

Adjustments primarily involving the Pensions Reserve:

Reversal of items relating to retirement benefits debited or credited to the Comprehensive Income and Expenditure Statement (see Note 47) x x x

Employer’s pensions contributions and direct payments to pensioners payable in the year x x x

Adjustments primarily involving the Collection Fund Adjustment Account:

Amount by which council tax and non-domestic rating income credited to the Comprehensive Income and Expenditure Statement is different from council tax and non-domestic rating income calculated for the year in accordance with statutory requirements x x

Adjustment primarily involving the Unequal Pay Back Pay Adjustment Account:

Amount by which amounts charged for Equal Pay claims to the Comprehensive Income and Expenditure Statement are different from the cost of settlements chargeable in the year in accordance with statutory requirements x x x

Adjustment primarily involving the Accumulated Absences Account:

Amount by which officer remuneration charged to the Comprehensive Income and Expenditure Statement on an accruals basis is different from remuneration chargeable in the year in accordance with statutory requirements x x x

Total Adjustments x x x x x x

a From 2011/12 this includes the application of Community Infrastructure Levy where appropriate.


Usable Reserves

20X0/X1 Comparative Figures

Gene

ral F

und

Bala

nce

£000

Hou

sing

Rev

enue

Ac

coun

t £0

00

Capi

tal R

ecei

pts

Rese

rve

£0

00

Maj

or R

epai

rs R

eser

ve

£000

Capi

tal G

rant

s U

napp

lied

£0

00

Mov

emen

t in

Unu

sabl

e Re

serv

es

£000

Adjustments primarily involving the Capital Adjustment Account:

Reversal of items debited or credited to the Comprehensive Income and Expenditure Statement:

Charges for depreciation and impairment of non-current assets x x x

Revaluation losses on Property, Plant and Equipment x x

Movements in the fair value of Investment Properties x x

Amortisation of intangible assets x x

Capital grants and contributions applieda x x x

Income in relation to donated assets x x

Revenue expenditure funded from capital under statute x x x

Amounts of non-current assets written off on disposal or sale as part of the gain/loss on disposal to the Comprehensive Income and Expenditure Statement x x x

Insertion of items not debited or credited to the Comprehensive Income and Expenditure Statement:

Statutory provision for the financing of capital investment x x x

Capital expenditure charged against the General Fund and HRA balances x x x

Adjustments primarily involving the Capital Grants Unapplied Account:

Capital grants and contributions unapplied credited to the Comprehensive Income and Expenditure Statement x x

Application of grants to capital financing transferred to the Capital Adjustment Account x x

Transfers in respect of Community Infrastructure Levy Receipt x x


Usable Reserves


Gene

ral F

und

Bala

nce

£000

Hou

sing

Rev

enue

Ac

coun

t £0

00

Capi

tal R

ecei

pts

Rese

rve

£0

00

Maj

or R

epai

rs R

eser

ve

£000

Capi

tal G

rant

s U

napp

lied

£0

00

Mov

emen

t in

Unu

sabl

e Re

serv

es

£000

Adjustments primarily involving the Capital Receipts Reserve:

Transfer of cash sale proceeds credited as part of the gain/loss on disposal to the Comprehensive Income and Expenditure Statement x x x

Use of the Capital Receipts Reserve to finance new capital expenditure x x

Contribution from the Capital Receipts Reserve towards administrative costs of non-current asset disposals x x x

Contribution from the Capital Receipts Reserve to finance the payments to the Government capital receipts pool x x x

Transfer from Deferred Capital Receipts Reserve upon receipt of cash x x

Adjustments primarily involving the Deferred Capital Receipts Reserve (England and Wales):

Transfer of deferred sale proceeds credited as part of the gain/loss on disposal to the Comprehensive Income and Expenditure Statement x x

Adjustment primarily involving the Major Repairs Reserve:

Reversal of Notional Major Repairs Allowance credited to the HRA x x

Use of the Major Repairs Reserve to finance new capital expenditure x x

Adjustments primarily involving the Financial Instruments Adjustment Account:

Amount by which finance costs charged to the Comprehensive Income and Expenditure Statement are different from finance costs chargeable in the year in accordance with statutory requirements x x


Usable Reserves


Gene

ral F

und

Bala

nce

£000

Hou

sing

Rev

enue

Ac

coun

t £0

00

Capi

tal R

ecei

pts

Rese

rve

£0

00

Maj

or R

epai

rs R

eser

ve

£000

Capi

tal G

rant

s U

napp

lied

£0

00

Mov

emen

t in

Unu

sabl

e Re

serv

es

£000

Adjustments primarily involving the Pensions Reserve:

Reversal of items relating to retirement benefits debited or credited to the Comprehensive Income and Expenditure Statement (see Note 47) x x x

Employer’s pensions contributions and direct payments to pensioners payable in the year x x x

Adjustments primarily involving the Collection Fund Adjustment Account:

Amount by which council tax and non-domestic rating income credited to the Comprehensive Income and Expenditure Statement is different from council tax and non-domestic rating income calculated for the year in accordance with statutory requirements x x

Adjustment primarily involving the Unequal Pay Back Pay Adjustment Account:

Amount by which amounts charged for Equal Pay claims to the Comprehensive Income and Expenditure Statement are different from the cost of settlements chargeable in the year in accordance with statutory requirements x x x

Adjustment primarily involving the Accumulated Absences Account:

Amount by which officer remuneration charged to the Comprehensive Income and Expenditure Statement on an accruals basis is different from remuneration chargeable in the year in accordance with statutory requirements x x x

Total Adjustments x x x x x x

a From 2011/12, this includes the application of Community Infrastructure Levy where appropriate.


8. TRANSFERS TO/FROM EARMARKED RESERVES31 This note sets out the amounts set aside from the General Fund and HRA balances in earmarked reserves to provide financing for future expenditure plans and the amounts posted back from earmarked reserves to meet General Fund and HRA expenditure in 20X1/X2

Balance at 1 April

20X0

£000

Transfers Out

20X0/X1

£000

Transfers In

20X0/X1

£000

Balance at 31 March

20X1

£000

Transfers Out

20X1/X2

£000

Transfers In

20X1/X2

£000

Balance at 31 March

20X2

£000

General Fund

Balances held by schools under a scheme of delegation x x x x x x x

Earmarked reserve A x x x x x x x

Earmarked reserve B x x x x x x x

… etc … x x x x x x x

Total x x x x x x x

HRA

Housing Repairs Account x x x x x x x

Earmarked reserve C x x x x x x x

… etc … x x x x x x x

Total x x x x x x x

9. OTHER OPERATING EXPENDITURE32

20X0/X1

£00020X1/X2

£000

x Parish council precepts x

x Levies x

x Payments to the Government Housing Capital Receipts Pool x

x Gains/losses on the disposal of non-current assets x

x Total x




10. FINANCING AND INVESTMENT INCOME AND EXPENDITURE33

20X0/X1

£000

20X1/X2

£000

x Interest payable and similar charges x

x Net interest on the net defined benefit liability (asset) x

x Interest receivable and similar income x

x Income and expenditure in relation to investment properties and changes in their fair value

x

x Other investment income x

x Total x

11. TAXATION AND NON-SPECIFIC GRANT INCOME AND EXPENDITURE34

20X0/X1

£000

20X1/X2

£000

x Council tax income x

x Non-domestic rates income and expenditure x

x Non-ringfenced government grants x

x Capital grants and contributions x

x Total x




12. PROPERTY, PLANT AND EQUIPMENT

Movements on Balances35

Movements in 20X1/X2:

Coun

cil D

wel

lings

£0

00

Othe

r Lan

d an

d Bu

ildin

gs

£000

Vehi

cles

, Pla

nt, F

urni

ture

&

Equi

pmen

t £0

00

Infr

astr

uctu

re A

sset

s £0

00

Com

mun

ity

Asse

ts

£000

Surp

lus

Asse

ts

£000

Asse

ts U

nder

Con

stru

ctio

n £0

00

Tota

l Pro

pert

y, P

lant

and

Eq

uipm

ent

£000

Serv

ice

Conc

essi

on A

sset

s In

clud

ed in

Pro

pert

y, P

lant

and

Eq

uipm

enta

£0

00

Cost or Valuation

At 1 April 20X1 x x x x x x x x x

additions x x x x x x x x x

donations x x x x x x x x x

revaluation increases/(decreases) recognised in the Revaluation Reserve

x x x x x x x x x

revaluation increases/(decreases) recognised in the Surplus/Deficit on the Provision of Services

x x x x x x x x x

derecognition – disposals x x x x x x x x x

derecognition – other x x x x x x x x x

assets reclassified (to)/from Held for Sale

x x x x x x x x x

other movements in cost or valuation

x x x x x x x x x

At 31 March 20X2 x x x x x x x x x

Accumulated Depreciation and Impairment

at 1 April 20X1 x x x x x x x x x

depreciation charge x x x x x x x x x

depreciation written out to the Revaluation Reserve

x x x x x x x x x

35. Required by paragraphs 4.1.4.3(1)(d) and 4.1.4.3(1)(e) of the Code. Items (a) to (c) in paragraph 4.1.4.3(1) are covered in the accounting policies for Tangible Assets. The example has more lines than the minimum required by the Code in order that a comprehensive reconciliation of movements is achieved. Where any line has nil entries, it can be deleted from the table.


Coun

cil D

wel

lings

£0

00

Othe

r Lan

d an

d Bu

ildin

gs

£000

Vehi

cles

, Pla

nt, F

urni

ture

&

Equi

pmen

t £0

00

Infr

astr

uctu

re A

sset

s £0

00

Com

mun

ity

Asse

ts

£000

Surp

lus

Asse

ts

£000

Asse

ts U

nder

Con

stru

ctio

n £0

00

Tota

l Pro

pert

y, P

lant

and

Eq

uipm

ent

£000

Serv

ice

Conc

essi

on A

sset

s In

clud

ed in

Pro

pert

y, P

lant

and

Eq

uipm

enta

£0

00

depreciation written out to the Surplus/Deficit on the Provision of Services

x x x x x x x x x

impairment losses/(reversals)recognised in the Revaluation Reserve

x x x x x x x x x

impairment losses/(reversals) recognised in the Surplus/Deficit on the Provision of Services

x x x x x x x x x



other movements in depreciation and impairment

x x x x x x x x x

At 31 March 20X2 x x x x x x x x x

Net Book Value

at 31 March 20X2 x x x x x x x x x


a Required by paragraph 4.3.4.2 of the Code. The figures do not have to be provided as part of the note on the overall movement on Property, Plant and Equipment balances.


Comparative Movements in 20X0/X1:

Coun

cil D

wel

lings

£0

00

Othe

r Lan

d an

d Bu

ildin

gs

£000

Vehi

cles

, Pla

nt,

Furn

itur

e &

Equ

ipm

ent

£000

Infr

astr

uctu

re A

sset

s £0

00

Com

mun

ity

Asse

ts

£000

Surp

lus

Asse

ts

£000

Asse

ts U

nder

Co

nstr

ucti

on

£000

Tota

l Pro

pert

y, P

lant

an

d Eq

uipm

ent

£000

PFI A

sset

s In

clud

ed

in P

rope

rty,

Pla

nt a

nd

Equi

pmen

t £0

00

Cost or Valuation

At 1 April 20X0 x x x x x x x x x

additions x x x x x x x x x

donations x x x x x x x x x

revaluation increases/(decreases) recognised in the Revaluation Reserve

x x x x x x x x x

revaluation increases/(decreases) recognised in the Surplus/Deficit on the Provision of Services

x x x x x x x x x



assets reclassified (to)/from Held for Sale

x x x x x x x x x

other movements in cost or valuation

x x x x x x x x x

At 31 March 201X x x x x x x x x x

Accumulated Depreciation and Impairment

at 1 April 20X0 x x x x x x x x x

depreciation charge x x x x x x x x x

depreciation written out to the Revaluation Reserve

x x x x x x x x x

depreciation written out to the Surplus/Deficit on the Provision of Services

x x x x x x x x x

impairment losses/(reversals) recognised in the Revaluation Reserve

x x x x x x x x x

impairment losses/(reversals) recognised in the Surplus/Deficit on the Provision of Services

x x x x x x x x x



Coun

cil D

wel

lings

£0

00

Othe

r Lan

d an

d Bu

ildin

gs

£000

Vehi

cles

, Pla

nt,

Furn

itur

e &

Equ

ipm

ent

£000

Infr

astr

uctu

re A

sset

s £0

00

Com

mun

ity

Asse

ts

£000

Surp

lus

Asse

ts

£000

Asse

ts U

nder

Co

nstr

ucti

on

£000

Tota

l Pro

pert

y, P

lant

an

d Eq

uipm

ent

£000

PFI A

sset

s In

clud

ed

in P

rope

rty,

Pla

nt a

nd

Equi

pmen

t £0

00


other movements in depreciation and impairment

x x x x x x x x x


Net Book Value



Depreciation

The following useful lives and depreciation rates have been used in the calculation of depreciation:

� Council Dwellings – 50–70 years

� Other Land and Buildings – 30–50 years

� Vehicles, Plant, Furniture & Equipment – 10% to 35% of carrying amount

� Infrastructure – 25 years

Capital Commitments36

At 31 March 20X2, the Authority has entered into a number of contracts for the construction or enhancement of Property, Plant and Equipment in 20X2/03 and future years budgeted to cost £x. Similar commitments at 31 March 20X1 were £x. The major commitments are:

� Scheme L – £x

� Scheme M – £x

� Scheme N – £x

Effects of Changes in Estimates37

In 20X1/X2, the Authority made two material changes to its accounting estimates for Property, Plant and Equipment:

� During the revaluation of the Authority’s office accommodation, remaining useful lives were reviewed critically for all properties occupied by the Authority. As a result, the depreciation charge for the properties of £x for 20X1/X2 was £x lower than it would have

36. Required by paragraph 4.1.4.3(2) of the Code.



been if the useful lives assessed in 20X0/X1 had been used for the calculations. The impact of this change will carry forward into 20X2/X3 and future years.

� It has been determined that a unit of consumption depreciation methodology will be a more effective measure of the use of the Authority’s vehicle fleet than straight-line calculations. The change in methodology has resulted in a depreciation charge £x higher than would have been calculated under the previous methodology. The impact of this change will carry forward into 20X2/X3 and future years.

Revaluations38

The Authority carries out a rolling programme that ensures that all Property, Plant and Equipment required to be measured at fair value is revalued at least every five years. All valuations were carried out internally. Valuations of land and buildings were carried out in accordance with the methodologies and bases for estimation set out in the professional standards of the Royal Institution of Chartered Surveyors. Valuations of vehicles, plant, furniture and equipment are based on current prices where there is an active second-hand market or latest list prices adjusted for the condition of the asset.

The significant assumptions applied in estimating the fair values are:

� Assumption E

� Assumption F

� Assumption G.

Council Dwellings

£000

Other Land and Buildings

£000

Vehicles, Plant,

Furniture and Equipment

£000

Surplus Assets

£000Total £000

Carried at historical cost

x x x x x

valued at fair value as at:

31 March 20X2 x x x x x



31 March 20W9 x x x x x

31 March 20W8 x x x x x

Total Cost or Valuation x x x x x

38. Required by paragraph 4.1.4.3(4) of the Code. The requirement for the effective date of valuations to be disclosed means that the total revalued amount will need to be analysed across each of the preceding financial years where a rolling programme of revaluations has been used.


13. HERITAGE ASSETS

Reconciliation of the Carrying Value of Heritage Assets Held by the Authority39

Ceramics

Art Collection

Pottery Machinery

Total Assets

£000 £000 £000 £000

Cost or Valuation

1 April 20X0 x x x x

Additions x x x x

Disposals x x x x

Revaluations x x x x

Impairment Losses/(reversals) recognised in the Revaluation Reserve

x x x x

Impairment Losses/(reversals) recognised in Surplus or Deficit on the Provision of Services

x x x x

Depreciation40 - - - -

31 March 20X1 x x x x

Cost or Valuation


Additions x x x x

Disposals x x x x

Revaluations x x x x

Impairment Losses/(reversals) recognised in the Revaluation Reserve

x x x x


x x x x

Depreciation - - - -


Ceramics, Porcelain Work and Figurines

The Authority’s collection of ceramics, porcelain work and figurines is reported in the Balance Sheet at insurance valuation which is based on market values. These insurance valuations are updated annually. Additionally, the key dinner services and items are sampled periodically and reviewed against the relevant antique and ceramic trade press at least annually to ensure the adequacy of the valuation.


40. The accounting policies in the example state that the heritage assets are not subject to depreciation in accordance with the Code and FRS 30. However this line has been included for demonstration purposes only.


The ceramics, porcelain work and figurines collection also has particularly significant items in terms of both value and note, including an excellent example of a bone china tea service from the Kilnshire Pottery valued at £x. Lord Grace’s dinner service depicting the expedition up the Nile has been valued at £x.

The collection also includes a set of porcelain figurines produced by the Mount Anna factory. This is thought to be one of the earliest examples of the figurines and would mean the collection would be valued at £x. However, expert opinion is divided on the authenticity of the provenance documentation and therefore the figurines are valued on the basis of other similar (but later) assets at £x.41

Art Collection

The Authority’s external valuer for its art work (Pikaso, VanGok and Co) carried out a full valuation of the collection of paintings as at 31 March 20X2.42 The valuations were based on commercial markets including recent transaction information from auctions where similar types of paintings are regularly being purchased.43 During the year one of the paintings of Lady Daisy Grace’s collection that was previously valued at £x suffered major damage due to damp and was revalued at 31 March 20X2 at £x. The write-down of £x was charged to the Comprehensive Income and Expenditure Statement. In accordance with statutory provisions, its impact on the General Fund was then reversed out to the Capital Adjustment Account.

In the Art Collection there are two significant exhibits of donated assets.44 The first is a particularly good example of the later works of Monay, ‘Girls in a Daisy Field’. The painting has been valued by the external valuer at £x million. The Sayzanne is deemed to be an excellent example of his work on landscapes and is valued at £x million.

Machinery, Equipment and other Artefacts from the Pottery Industry

The collection of items of machinery and equipment from the pottery industry includes a particularly excellent example of a glazing machine. This has been valued at £x. This value has been established as the same model was sold at a recent auction. The four recent donations of slip-casting moulds have been valued at market value at £x. The curator has been able to establish the market valuation with observation of sales of very similar items at auction.

41. Required by paragraph 4.10.4.2(ii)(d) of the Code.

42. Required by paragraph 4.10.4.2(ii) of the Code.

43. As above.



Additions of Heritage Assets45

Additions comprise:

£000

Purchase at auction of an oil painting of Sir John Teecup for £x. The Board of Trustees approved this purchase as it was an excellent example of the artist’s work and will support the museum’s objective of ensuring that the local area has a full understanding of the contribution the pottery industry made to its development.

x

Acquisition of a Kilnshire Pottery tea service. x

Donation of a dessert service from Lady Charlotte Lowler. x

Disposals in 20X1/X2 include:

The sale of a donated early twentieth century dinner service – the curator of the ceramics collection has ascertained that, though a fine collection, it was not made in the Authority area. On an exceptional basis the Authority has therefore sold the asset and used the disposal proceeds to purchase a tea service produced in the late nineteenth century by the Kilnshire Pottery. The carrying value of the asset was £x and the proceeds were £x. These sale proceeds were also accounted for in accordance with statutory requirements for the sale of non-current assets as this asset meets the definition of a capital receipt.

14. INVESTMENT PROPERTIES[Note needed per paragraph 4.4.4.2(1) of the Code if an authority has classified property interests held under operating leases as investment property.]

The following items of income and expense have been accounted for in the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement:46

20X1/X2

£000

20X0/X1

£000

Rental income from investment property x x

Direct operating expenses arising from investment property

(x) (x)

Net gain/(loss) x x

There are no restrictions on the Authority’s ability to realise the value inherent in its investment property or on the Authority’s right to the remittance of income and the proceeds of disposal.47 The Authority has no contractual obligations to purchase, construct or develop investment property or repairs, maintenance or enhancement.48






The following table summarises the movement in the fair value of investment properties over the year:49

20X1/X2

£000

20X0/X1

£000

Balance at start of the year x x

Additions:

� Purchases

� Construction

� Subsequent expenditure

x

x

x

x

x

x

Disposals (x) (x)

Net gains/losses from fair value adjustments x x

Transfers:

� to/from Inventories

� to/from Property, Plant and Equipment

(x)

(x)

(x)

(x)

Other changes x x

Balance at end of the year x x

15. INTANGIBLE ASSETSThe Authority accounts for its software as intangible assets, to the extent that the software is not an integral part of a particular IT system and accounted for as part of the hardware item of Property, Plant and Equipment. The intangible assets include both purchased licenses and internally generally software.

All software is given a finite useful life, based on assessments of the period that the software is expected to be of use to the Authority. The useful lives assigned to the major software suites used by the Authority are:50

Internally Generated Assets Other Assets

3 years Item C Item P, Item Q

5 years Item D, Item E None

10 years None Item R, Item S, Item T

The carrying amount of intangible assets is amortised on a straight-line basis.51 The amortisation of £x charged to revenue in 20X1/X2 was charged to the IT Administration cost centre and then absorbed as an overhead across all the service headings in the Cost of


50. Required by paragraph 4.5.4.2(1)(a) of the Code.

51. Required by paragraph 4.5.4.2(1)(b) of the Code.


Services. It is not possible to quantify exactly how much of the amortisation is attributable to each service heading.52

The movement on Intangible Asset balances during the year is as follows:53

20X1/X2 20X0/X1

Internally Generated

Assets

£000

Other Assets

£000

Total

£000

Internally Generated

Assets

£000

Other Assets

£000

Total

£000

Balance at start of year:

� Gross carrying amounts

� Accumulated amortisation

x

x

x

x

x

x

x

x

x

x

x

x

Net carrying amount at start of year x x x x x x

Additions:

� Internal development

� Purchases

� Acquired through business combinations

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

Assets reclassified as held for sale x x x x x x

Other disposals

Revaluations increases or decreases x x x x x x

Impairment losses recognised or reversed directly in the Revaluation Reserve

x x x x x x

Impairment losses recognised in the Surplus/Deficit on the Provision of Services

x x x x x x

Reversals of past impairment losses written back to the Surplus/Deficit on the Provision of Services

Amortisation for the period x x x x x x

Other changes x x x x x x

Net carrying amount at end of year x x x x x x

Comprising:

� Gross carrying amounts

� Accumulated amortisation

x

x

x

x

x

x

x

x

x

x

x

x

x x x x x x

52. Required by paragraph 4.5.4.2(1)(d) of the Code.

53. A consolidation of the requirements in paragraph 4.5.4.2(1)(c) and 4.5.4.2(1)(e) of the Code – most of the lines will in practice have no entries against them and can be deleted.


[Note required per paragraph 4.5.4.2(2) of the Code if changes in accounting estimates for Intangible Assets have an effect on the current period or are expected to have an effect in subsequent periods.]

[Note required per paragraph 4.5.4.2(3) of the Code of details of assets assessed as having an indefinite useful life – carrying amount and reasons for assessment.]

There are two items of capitalised software that are individually material to the financial statements:54

Carrying Amount

Remaining Amortisation Period

31 March 20X2

£000

31 March 20X1

£000

Item D [description] x x 2 years

Item S [description] x x 8 years

In February 20X2 the Authority entered into a contract for the replacement of its payroll software. The new system is anticipated to be operational in 20X3/X4, with a budgeted cost of £x.55

The Council revalues its software assets acquired under licences where comparable licences are currently commercially available for purchase. Revaluations are made at every year end, based on the market price of the comparable licences at that date. The revalued amount of the licences makes up £x of the balance of Other Intangible Assets at 31 March 20X2 (£x at 31 March 20X1). If the assets had not been revalued, their carrying amount at that date would have been £x (£x at 31 March 20X1). At 31 March 20X2, the Revaluation Reserve contains accumulated revaluation gains of £x in relation to these assets (£x at 31 March 20X1), the movement of £x in 20X1/X2 comprising revaluation increases and decreases (£x) and impairment losses recognised or reversed directly in the Revaluation Reserve (£x) (detailed in the table of Balance Sheet movements above), depreciation (£x) and liquidation on disposal (£x).56

[Note required per paragraph 4.5.4.2(7) of the Code where intangible assets have been acquired by way of government grant and initially recognised at fair value.]

54. Required by paragraph 4.5.4.2(4) of the Code, if there are any individual assets that are material.




16. FINANCIAL INSTRUMENTS

Categories of Financial Instruments

The following categories of financial instrument are carried in the Balance Sheet:57

Long-term Current

31 March 20X2 £000

31 March 20X1 £000

31 March 20X2 £000

31 March 20X1 £000

Investments

Loans and receivables x x x x

Available-for-sale financial assets x x x x

Unquoted equity investment at cost x x x x

Financial assets at fair value through profit and loss

x x x x

Total investments x x x x

Debtors

Loans and receivables x x

Financial assets carried at contract amounts

x x

Total included in Debtors x x x x

Borrowings

Financial liabilities at amortised cost x x x x

Financial liabilities at fair value through profit and loss

x x x x

Total included in borrowings x x x x

Other Long-term Liabilities

PFI and finance lease liabilities x x

Total other long-term liabilities x x

Creditors

Financial liabilities at amortised cost x x

Financial liabilities carried at contract amount

x x

Total creditors x x x x



Material Soft Loans Made by the Authority

Loan to Authority Y for the ABC Business Park58

The loan to Authority Y to redevelop the business park to make it fit for twenty-first century small- to medium-sized businesses is deemed to be a material soft loan – the loan is an interest-free loan of £X to Authority Y.

20X1/X2

£000

20X0/X1

£000


Opening balance x x

Nominal value of new loans granted in the year59 x x

Fair value adjustment on initial recognition60 x x

Loans repaid x x

Impairment losses x x

Increase in discounted amount x x

Other changes x x

Closing balance at end of year x x

Nominal value at 31 March x x

Valuation Assumptions

The interest rate at which the fair value of this soft loan has been made is arrived at by taking the authority’s prevailing cost of borrowing (X%) and adding an allowance for the risk that the loan might not be repaid by Authority Y in this case a zero rate.


59. Note this line is included for demonstration purposes and is not likely to be applicable in the case of this loan.

60. Note this line is included for demonstration purposes and is not likely to be applicable in the case of this loan.


Employee Car Loans61

The authority makes loans for car purchase to 120 employees in the authority who are in posts that require them to drive regularly on the authority’s business.

No interest is charged on the loans but the authority assesses that an unsubsidised rate for such loans would have been Y%.

20X1/X2 20X0/X1

£000 £000 £000 £000


Opening balance x x

Nominal value of new loans granted in the year x x

Fair value adjustment on initial recognition x x

Fair value of new loans x x

Loans repaid x x

Impairment losses x x

Increase in discounted amount x x

Other changes x x

Closing balance at end of year x x

Nominal value at end of year x x

Valuation Assumptions

The interest rate at which the fair values of these soft loans have been recognised is arrived at by taking the authority’s prevailing cost of borrowing for a comparable loan at the date of the advance and adding an allowance for the risk that the loan might not be repaid by the employees.

Reclassifications62

In 20X1/X2 the Authority reclassified its investment in Best of Both Worlds Ltd from an unquoted equity investment at cost to an available-for-sale asset at fair value. It was transferred at its carrying amount of £x and then revalued to £x. At 31 March 20X1 the company had been a new venture that had no trading history and a reliable estimate of fair value could not be established.




[Paragraphs 7.4.2.4 to 7.4.2.8 of the Code contain a number of disclosure requirements that will rarely be applicable to local authorities. Additional notes will be required where an authority has a material involvement in any of the following:

� the authority has offset financial assets and financial liabilities in accordance with the criteria set out in paragraph 7.4.5.1 – as stated in paragraph 7.4.2.4 of the Code

� the authority holds collateral that it is permitted to sell or re-pledge – paragraph 7.4.2.5 of the Code

� an allowance account for credit loss is being maintained rather than amounts being netted off directly against the relevant assets – paragraph 7.4.2.6 of the Code

� the authority has defaulted on a loan agreement or otherwise breached it – paragraphs 7.4.2.7 and 7.4.2.8 of the Code

� transfer of title to assets has taken place but the Code’s criteria for derecognition have not been met – paragraph 7.4.4.1 of the Code.]

Income, Expense, Gains and Losses63

20X1/X2 20X0/X1

Fina

ncia

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bilit

ies

mea

sure

d at

am

orti

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cost

£0

00

Fina

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ets:

Loa

ns a

nd

rece

ivab

les

£0

00

Fina

ncia

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ets:

Ava

ilabl

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£000

Asse

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thro

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Profi

t an

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ss

£000

Tota

l £0

00

Fina

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sure

d at

am

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sed

cost

£0

00

Fina

ncia

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ets:

Loa

ns a

nd

rece

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les

£0

00

Fina

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l Ass

ets:

Ava

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e £0

00

Asse

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nd L

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s at

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thro

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Profi

t an

d Lo

ss

£000

Tota

l £0

00

Interest expense x – x – x x – x – x

Losses on derecognition x x x x x x x x x x

Reductions in fair value – – – x x – – – x x

Impairment losses – x – – x – x – – x

Fee expense x x x x x x x x x x

Total expense in Surplus or Deficit on the Provision of Services

x x x x x x x x x x

Interest income – x – – x – x – – x

Interest income accrued on impaired financial assets

– x – – x – x – – x

Increases in fair value – – – x x – – – x x

Gains on derecognition x x x x x x x x x x

Fee income x x x x x x x x x x



20X1/X2 20X0/X1

Fina

ncia

l Lia

bilit

ies

mea

sure

d at

am

orti

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cost

£0

00

Fina

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ets:

Loa

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nd

rece

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les

£0

00

Fina

ncia

l Ass

ets:

Ava

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e

£000

Asse

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Profi

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£000

Tota

l £0

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Fina

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cost

£0

00

Fina

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l Ass

ets:

Loa

ns a

nd

rece

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les

£0

00

Fina

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ets:

Ava

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e £0

00

Asse

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thro

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Profi

t an

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£000

Tota

l £0

00

Total income in Surplus or Deficit on the Provision of Services

x x x x x x x x x x

Gains on revaluation – – x – x – – x – x

Losses on revaluation – – x – x – – x – x

Amounts recycled to the Surplus or Deficit on the Provision of Services after impairment

– – x – x – – x – x

Surplus/deficit arising on revaluation of financial assets in Other Comprehensive Income and Expenditure

– – x – x – – x – x

Net gain/(loss) for the year

x x x x x x x x x x

Fair Values of Assets and Liabilities64

Financial liabilities, financial assets represented by loans and receivables and long-term debtors and creditors are carried in the Balance Sheet at amortised cost. Their fair value can be assessed by calculating the present value of the cash flows that will take place over the remaining term of the instruments, using the following assumptions:65

� estimated ranges of interest rates at 31 March 20X2 of p% to q% for loans from the PWLB and r% to s% for other loans receivable and payable, based on new lending rates for equivalent loans at that date

� no early repayment or impairment is recognised

� where an instrument will mature in the next 12 months, carrying amount is assumed to approximate to fair value

� the fair value of trade and other receivables is taken to be the invoiced or billed amount.


65. Details of valuation technique required by paragraph 7.4.2.13 of the Code.


The fair values calculated are as follows:

31 March 20X2 31 March 20X1

Carrying amount

£000

Fair value £000

Carrying amount

£000

Fair value £000

Financial liabilities x x x x

Long-term creditors x x x x

The fair value of the liabilities is lower than the carrying amount because the Authority’s portfolio of loans includes a number of fixed rate loans where the interest rate payable is lower than the prevailing rates at the Balance Sheet date. This shows a notional future gain (based on economic conditions at 31 March 20X2) arising from a commitment to pay interest to lenders below current market rates.

31 March 20X2 31 March 20X1

Carrying amount

£000

Fair value £000

Carrying amount

£000

Fair value £000

Loans and receivables x x x x

Long-term debtors x x x x

The fair value of the assets is lower than the carrying amount because the Authority’s portfolio of investments includes a number of fixed rate loans where the interest rate receivable is lower than the rates available for similar loans at the Balance Sheet date. This shows a notional future loss (based on economic conditions at 31 March 20X2) attributable to the commitment to receive interest below current market rates.

Available for sale assets and assets and liabilities at fair value through profit or loss are carried in the Balance Sheet at their fair value. These fair values are based on public price quotations where there is an active market for the instrument. The exceptions to this treatment are:

� The Authority’s shareholding in Best of Both Worlds Ltd – the shares are not traded in an active market and fair value of £x has been based on valuation techniques that are not based on observable current market transactions or available market data. The valuation has been made based on an analysis of the assets and liabilities in the Company’s latest audited accounts and an assessment of future trading prospects of a 5% return on net assets per annum. If future returns are greater or lesser by 1% than the 5% assessment the fair value will be £x higher or lower respectively.66

� The Authority’s shareholding in Hanham-on-Tanner Fame Handling Academy Ltd – the shares (representing 100% of the Company’s capital) are carried at cost of £x and have

66. Required by paragraph 7.4.2.13 of the Code where fair value is not based on prices from an active market. Further information is required by paragraph 7.4.2.14 where the valuation technique used would have given a different value on initial recognition from the amount at which the instrument was actually brought onto the Balance Sheet.


not been valued as a fair value cannot be measured reliably. The company was formed in February 20X2 and has no established trading history. There are also no established companies with similar aims in the Authority’s area whose shares are traded and which might provide comparable market data. The Authority has no current intention to dispose of the shareholding.67

Short-term debtors and creditors are carried at cost as this is a fair approximation of their value.

17. INVENTORIES68

Consumable Stores

Maintenance Materials

Client Services Work in

Progress

Property Acquired or

Constructed for Sale

Total

20X1

/X2

£000

20X0

/X1

£000

20X1

/X2

£000

20X0

/X1

£000

20X1

/X2

£000

20X0

/X1

£000

20X1

/X2

£000

20X0

/X1

£000

20X1

/X2

£000

20X0

/X1

£000

Balance outstanding at start of year

x x x x x x x x x x

Purchases x x x x x x x x x x

Recognised as an expense in the year

x x x x x x x x x x

Written off balances x x x x x x x x x x

Reversals of write-offs in previous yearsa

x x x x x x x x x x

Balance outstanding at year-end

x x x x x x x x x x

a Where entries are made against this line, paragraph 5.1.4.2(e) of the Code requires disclosure of the circumstances or events that led to the reversal.

18. CONSTRUCTION CONTRACTS69

At 31 March 20X2 the Authority had two construction contracts in progress: the construction of a new Jacksonville bypass for the Department of Transport and the building of an estate of 20 houses for the Hanham Homes Housing Association. The value of work completed at 31 March 20X2 has been established using a stage of completion methodology based on architects’ certificates obtained at the year-end. The amount due from the two parties at 31 March 20X2 is as follows:

67. Required by paragraph 7.4.2.16 of the Code where available for sale assets are carried at cost.

68. Required by paragraph 5.1.4.2 of the Code. The classes to be used are not specified by the Code, but should be appropriate to the authority.



Department of Transport

£000

Hanham Homes

£000

Costs incurred to date x x

Revenue recognised:

� before 1 April 20X1

� during 20X1/X2

x

x

x

x

Profit/(loss) x x

Advances received x x

Gross amount due x x

Comprising:

� amounts not billed

� retentions

x

x

x

x

19. DEBTORS70,71

31 March 20X2

£000

31 March 20X1

£000

Central government bodies x x

Other local authorities x x

NHS bodies x x

Public corporations and trading funds x x

Other entities and individuals x x

Total x x

20. CASH AND CASH EQUIVALENTS72

The balance of Cash and Cash Equivalents is made up of the following elements:

31 March 20X1

£000

31 March 20X2

£000

x Cash held by the Authority x

x Bank current accounts x

x Short-term deposits with building societies x

x Total Cash and Cash Equivalents x

70. Required by paragraph 5.3.4.2 of the Code. Paragraph 3.4.2.59 of the Code suggests but does not require an analysis of receivables by type: amounts receivable from trade customers, receivables from related parties, prepayments and other amounts.

71. An alternative presentation of the debtors note can be found in the alternative presentation section of these example financial statements.



21. ASSETS HELD FOR SALE73

Current Non-current

20X1/X2

£000

20X0/X1

£000

20X1/X2

£000

20X0/X1

£000

Balance outstanding at start of year x x x x

Assets newly classified as held for sale:

� Property, Plant and Equipment

� Intangible Assets

� Other assets/liabilities in disposal groups

x

x

x

x

x

x

x

x

x

x

x

x

Revaluation losses x x x x

Revaluation gains x x x x

Impairment losses x x x x

Assets declassified as held for sale:

� Property, Plant and Equipment

� Intangible Assets

� Other assets/liabilities in disposal groups

x

x

x

x

x

x

x

x

x

x

x

x

Assets sold x x x x

Transfers from non-current to current x x x x

[Other movements] x x x x

Balance outstanding at year-end x x x x

22. CREDITORS74

31 March 20X2

£000

31 March 20X1

£000

Central government bodies x x

Other local authorities x x

NHS bodies x x

Public corporations and trading funds x x

Other entities and individuals x x

Total x x

73. Analysis of the Balance Sheet balance is not specifically required by the Code. See paragraph 4.9.4.2 of the Code.



23. PROVISIONS75, 76

Outstanding Legal Cases

£000

Injury and Damage

Compensation Claims

£000

Other Provisions

£000

Total

£000

Balance at 1 April 20X1 x x x x

Additional provisions made in 20X1/X2

x x x x

Amounts used in 20X1/X2 x x x x

Unused amounts reversed in 20X1/X2

x x x x

Unwinding of discounting in 20X1/X2

x x x x

Balance at 31 March 20X2 x x x x

Outstanding Legal Cases

The Authority has two substantial legal cases in progress that have been provided for:

� Her Majesty’s Revenue and Customs has made a claim against the Authority for £x of unpaid VAT in relation to the provision of educational courses. HMRC was awarded a sum of £x including interest and costs in the High Court, but the Authority is appealing against the decision. Provision has been made for the amount awarded by the High Court pending the outcome of the appeal. It is expected that the appeal will be heard in Spring 20X3.

� A case has been lodged against the Authority for negligence in its responsibilities for providing social care. A provision of £x has been made for the possible settlement that the Authority will have to pay. However, in order not to prejudice seriously the privacy of individuals and the Authority’s position in the case any further information has been withheld from this publication. Experience of similar cases in other authorities suggests that it will be three to five years before the case is concluded.77

Injury Compensation Claims

All of the injury compensation claims are individually insignificant. They relate to personal injuries sustained where the Authority is alleged to be at fault (eg through a failure to repair a road or pavement properly). Provision is made for those claims where it is deemed probable that the Authority will have to make a settlement, based on past experience of court decisions about liability and the amount of damages payable. All outstanding claims

75. Required by paragraph 8.2.4.2 of the Code – subparagraph (1) for movements and (2) for descriptions. The headings are not specified by the Code and should represent the classes of provisions made by the authority. The Code specifically exempts the analysis of movements from having prior year comparatives.

76. Local authorities with material provisions will need to ensure that their provisions are split and presented as appropriate as current and long-term liabilities. The related disclosure notes will need to be presented on the same basis (see Module 3, section G).

77. Exemption from disclosure provided for by paragraph 8.2.4.2(6) of the Code.


are expected to be settled in 20X3/X4. The Authority may be reimbursed by its insurers, but until claims are actually settled no income is recognised as the insurers will only reimburse amounts above a £10,000 excess.

Other Provisions

All other provisions are individually insignificant.

24. USABLE RESERVES78

Movements in the Authority’s usable reserves are detailed in the Movement in Reserves Statement.

25. UNUSABLE RESERVES

31 March 20X1

£000

31 March 20X2

£000

x Revaluation Reserve x

x Available for Sale Financial Instruments Reserve x

x Capital Adjustment Account x

x Financial Instruments Adjustment Account x

x Deferred Capital Receipts Reserve x

x Pensions Reserve x

x Collection Fund Adjustment Account x

x Unequal Pay Back Pay Account x

x Accumulated Absences Account x

x Total Unusable Reserves x

Revaluation Reserve79

The Revaluation Reserve contains the gains made by the Authority arising from increases in the value of its Property, Plant and Equipment [and Intangible Assets]. The balance is reduced when assets with accumulated gains are:

� revalued downwards or impaired and the gains are lost

� used in the provision of services and the gains are consumed through depreciation, or

� disposed of and the gains are realised.

The Reserve contains only revaluation gains accumulated since 1 April 2007, the date that the Reserve was created. Accumulated gains arising before that date are consolidated into the balance on the Capital Adjustment Account.


79. Required by paragraph 3.4.2.42 of the Code (analysis of amounts in each line of the classification of reserves) and 3.4.2.61 (description of nature and purpose, movements in the year and closing balance).


20X0/X1

£000

20X1/X2

£000x Balance at 1 April x

x Upward revaluation of assets x

x Downward revaluation of assets and impairment losses not charged to the Surplus/Deficit on the Provision of Services

x

x Surplus or deficit on revaluation of non-current assets not posted to the Surplus or Deficit on the Provision of Services

x

x Difference between fair value depreciation and historical cost depreciation

x

x Accumulated gains on assets sold or scrapped x

x Amount written off to the Capital Adjustment Account

x

x Balance at 31 March x

Available for Sale Financial Instruments Reserve

The Available for Sale Financial Instruments Reserve contains the gains made by the Authority arising from increases in the value of its investments that have quoted market prices or otherwise do not have fixed or determinable payments. The balance is reduced when investments with accumulated gains are:

� revalued downwards or impaired and the gains are lost

� disposed of and the gains are realised.

20X0/X1

£000

20X1/X2

£000

x Balance at 1 April x

x Upward revaluation of investments x

x Downward revaluation of investments not charged to the Surplus/Deficit on the Provision of Services

x

x x

x Accumulated gains on assets sold and maturing assets written out to the Comprehensive Income and Expenditure Statement as part of Other Investment Income

x


Capital Adjustment Account

The Capital Adjustment Account absorbs the timing differences arising from the different arrangements for accounting for the consumption of non-current assets and for financing the acquisition, construction or additions to those assets under statutory provisions. The Account is debited with the cost of acquisition, construction or subsequent costs as depreciation, impairment losses and amortisations are charged to the Comprehensive Income and Expenditure Statement (with reconciling postings from the Revaluation Reserve to convert fair


value figures to a historical cost basis). The Account is credited with the amounts set aside by the Authority as finance for the costs of acquisition, construction and subsequent costs.

The Account contains accumulated gains and losses on Investment Properties and gains recognised on donated assets that have yet to be consumed by the Authority.

The Account also contains revaluation gains accumulated on Property, Plant and Equipment before 1 April 2007, the date that the Revaluation Reserve was created to hold such gains.

Note 7 provides details of the source of all the transactions posted to the Account, apart from those involving the Revaluation Reserve.

20X0/X1

£000

20X1/X2

£000


Reversal of items relating to capital expenditure debited or credited to the Comprehensive Income and Expenditure Statement:

x � Charges for depreciation and impairment of non-current assets

x

x � Revaluation losses on Property, Plant and Equipment

x

x � Amortisation of intangible assets x

x � Revenue expenditure funded from capital under statute

x

x � Amounts of non-current assets written off on disposal or sale as part of the gain/loss on disposal to the Comprehensive Income and Expenditure Statement

x

x x

x Adjusting amounts written out of the Revaluation Reserve

x

x Net written out amount of the cost of non-current assets consumed in the year

x

Capital financing applied in the year:

x � Use of the Capital Receipts Reserve to finance new capital expenditure

x

x � Use of the Major Repairs Reserve to finance new capital expenditure

x

x � Capital grants and contributions credited to the Comprehensive Income and Expenditure Statement that have been applied to capital financing

x

x � Application of grants to capital financing from the Capital Grants Unapplied Account

x


20X0/X1

£000

20X1/X2

£000

x � Statutory provision for the financing of capital investment charged against the General Fund and HRA balances

x

x � Capital expenditure charged against the General Fund and HRA balances

x

x x

x Movements in the market value of Investment Properties debited or credited to the Comprehensive Income and Expenditure Statement

x

x Movement in the Donated Assets Account credited to the Comprehensive Income and Expenditure Statement

x


Financial Instruments Adjustment Account

The Financial Instruments Adjustment Account absorbs the timing differences arising from the different arrangements for accounting for income and expenses relating to certain financial instruments and for bearing losses or benefiting from gains per statutory provisions. [The Authority uses the Account to manage premiums paid on the early redemption of loans. Premiums are debited to the Comprehensive Income and Expenditure Statement when they are incurred, but reversed out of the General Fund Balance to the Account in the Movement in Reserves Statement. Over time, the expense is posted back to the General Fund Balance in accordance with statutory arrangements for spreading the burden on council tax. In the Authority’s case, this period is the unexpired term that was outstanding on the loans when they were redeemed. As a result, the balance on the Account at 31 March 20X2 will be charged to the General Fund over the next 14 years.]

20X0/X1

£000

20X1/X2

£000


x Premiums incurred in the year and charged to the Comprehensive Income and Expenditure Statement

x

x Proportion of premiums incurred in previous financial years to be charged against the General Fund Balance in accordance with statutory requirements

x

x Amount by which finance costs charged to the Comprehensive Income and Expenditure Statement are different from finance costs chargeable in the year in accordance with statutory requirements

x



Pensions Reserve

The Pensions Reserve absorbs the timing differences arising from the different arrangements for accounting for post-employment benefits and for funding benefits in accordance with statutory provisions. The Authority accounts for post-employment benefits in the Comprehensive Income and Expenditure Statement as the benefits are earned by employees accruing years of service, updating the liabilities recognised to reflect inflation, changing assumptions and investment returns on any resources set aside to meet the costs. However, statutory arrangements require benefits earned to be financed as the Authority makes employer’s contributions to pension funds or eventually pays any pensions for which it is directly responsible. The debit balance on the Pensions Reserve therefore shows a substantial shortfall in the benefits earned by past and current employees and the resources the Authority has set aside to meet them. The statutory arrangements will ensure that funding will have been set aside by the time the benefits come to be paid.

20X0/X1

£000

20X1/X2

£000


x Remeasurements of the net defined benefit liability/(asset) x

x Reversal of items relating to retirement benefits debited or credited to the Surplus or Deficit on the Provision of Services in the Comprehensive Income and Expenditure Statement

x

x Employer’s pensions contributions and direct payments to pensioners payable in the year

x


Deferred Capital Receipts Reserve (England and Wales)

The Deferred Capital Receipts Reserve holds the gains recognised on the disposal of non-current assets but for which cash settlement has yet to take place. Under statutory arrangements, the Authority does not treat these gains as usable for financing new capital expenditure until they are backed by cash receipts. When the deferred cash settlement eventually takes place, amounts are transferred to the Capital Receipts Reserve.

20X0/X1

£000

20X1/X2

£000


x Transfer of deferred sale proceeds credited as part of the gain/loss on disposal to the Comprehensive Income and Expenditure Statement

x

x Transfer to the Capital Receipts Reserve upon receipt of cash x



Collection Fund Adjustment Account

The Collection Fund Adjustment Account manages the differences arising from the recognition of council tax and non-domestic rates income in the Comprehensive Income and Expenditure Statement as it falls due from council tax payers and business rates payers compared with the statutory arrangements for paying across amounts to the General Fund from the Collection Fund.

20X0/X1

£000

20X1/X2

£000


x Amount by which council tax and non-domestic rates income credited to the Comprehensive Income and Expenditure Statement is different from council tax and non-domestic rates income calculated for the year in accordance with statutory requirements

x


Unequal Pay Back Pay Account

The Unequal Pay Back Pay Account compensates for the differences between the rate at which the Authority provides for the potential costs of back pay settlements in relation to Equal Pay cases and the ability under statutory provisions to defer the impact on the General Fund Balance until such time as cash might be paid out to claimants.

20X0/X1

£000

20X1/X2

£000


x Increase in provision for back pay in relation to Equal Pay cases

x

x Cash settlements paid in the year x

x Amount by which amounts charged for Equal Pay claims to the Comprehensive Income and Expenditure Statement are different from the cost of settlements chargeable in the year in accordance with statutory requirements

x


Accumulated Absences Account

The Accumulated Absences Account absorbs the differences that would otherwise arise on the General Fund Balance from accruing for compensated absences earned but not taken in the year, eg annual leave entitlement carried forward at 31 March. Statutory arrangements require that the impact on the General Fund Balance is neutralised by transfers to or from the Account.


20X0/X1

£000

20X1/X2

£000


x Settlement or cancellation of accrual made at the end of the preceding year

x

x Amounts accrued at the end of the current year x

x Amount by which officer remuneration charged to the Comprehensive Income and Expenditure Statement on an accruals basis is different from remuneration chargeable in the year in accordance with statutory requirements

x


26. CASH FLOW STATEMENT – OPERATING ACTIVITIES80

The cash flows for operating activities include the following items:

20X0/X1

£000

20X1/X2

£000

x Interest received x

x Interest paid x

x Dividends received x

80. Required by paragraphs 3.4.2.67 and 3.4.2.71 of the Code.


The surplus or deficit on the provision of services has been adjusted for the following non-cash movements:81

20X0/X1 20X1/X2

£000 £000

x Depreciation x

x Impairment and downward valuations x

x Amortisation x

x Increase/(decrease) in impairment for bad debts x

x Increase/decrease in creditors x

x Increase/decrease in debtors x

x Increase/decrease in inventories x

x Movement in pension liability x

xCarrying amount of non-current assets and non-current assets held for sale, sold or de-recognised x

xOther non-cash items charged to the net surplus or deficit on the provision of services x

x x

The surplus or deficit on the provision of services has been adjusted for the following items that are investing and financing activities:82

20X0/X1 20X1/X2

£000 £000

x

Proceeds from short-term (not considered to be cash equivalents) and long-term investments (includes investments in associates, joint ventures and subsidiaries) x

xProceeds from the sale of property, plant and equipment, investment property and intangible assets x

xAny other items for which the cash effects are investing or financing cash flows x

x x

81. It is recommended that, where material, authorities should disclose amounts included in line items b) and c) of paragraph 3.4.2.68 of the Code in the notes to the financial statements.



27. CASH FLOW STATEMENT – INVESTING ACTIVITIES83

20X0/X1

£000

20X1/X2

£000

x Purchase of property, plant and equipment, investment property and intangible assets

x

x Purchase of short-term and long-term investments x

x Other payments for investing activities x

x Proceeds from the sale of property, plant and equipment, investment property and intangible assets

x

x Proceeds from short-term and long-term investments x

x Other receipts from investing activities x

x Net cash flows from investing activities x

28. CASH FLOW STATEMENT – FINANCING ACTIVITIES84

20X0/X1

£000

20X1/X2

£000

x Cash receipts of short- and long-term borrowing x

x Other receipts from financing activities x

x Cash payments for the reduction of the outstanding liabilities relating to finance leases and on-Balance-Sheet PFI contracts

x

x Repayments of short- and long-term borrowing x

x Other payments for financing activities x

x Net cash flows from financing activities x

29. AMOUNTS REPORTED FOR RESOURCE ALLOCATION DECISIONS

The analysis of income and expenditure by service on the face of the Comprehensive Income and Expenditure Statement is that specified by the Service Reporting Code of Practice. However, decisions about resource allocation are taken by the Authority’s [Cabinet] on the basis of budget reports analysed across [directorates]. These reports are prepared on a different basis from the accounting policies used in the financial statements. In particular:

� no charges are made in relation to capital expenditure (whereas depreciation, revaluation and impairment losses in excess of the balance on the Revaluation Reserve and amortisations are charged to services in the Comprehensive Income and Expenditure Statement)




� the cost of retirement benefits is based on cash flows (payment of employer’s pension contributions) rather than current service cost of benefits accrued in the year

� expenditure on some support services is budgeted for centrally and not charged to [directorates].

The income and expenditure of the Authority’s principal [directorates] recorded in the budget reports for the year is as follows:

[Directorate] Income and Expenditurea

20X1/X2

Education and

Learning

£000

Health and Social Care

£000

Community and Living

£000

Environment, Planning and

Leisure

£000

Total

£000

Fees, charges & other service incomeb x x x x x

Government grants x x x x x

Total Income x x x x x

Employee expenses x x x x x

Other service expenses x x x x x

Support service recharges x x x x x

Total Expenditure x x x x x

Net Expenditure x x x x x

[Directorate] Income and Expenditure


Education and

Learning

£000

Health and Social Care

£000

Community and Living

£000

Environment, Planning and

Leisure

£000

Total

£000

Fees, charges & other service income x x x x x

Government grants x x x x x

Total Income x x x x x

Employee expenses x x x x x

Other service expenses x x x x x

Support service recharges x x x x x

Total Expenditure x x x x x

Net Expenditure x x x x x

a Segmental reporting note required by paragraph 3.4.2.89 of the Code.

b The subjective analysis used here is that required by paragraph 3.4.2.92 of the Code to be used in the reconciliation of the segmental analysis to total expenditure. Practitioners should use the subjective analysis (aggregated as appropriate) used in internal reporting for this part of the note.


Reconciliation of [Directorate] Income and Expenditure to Cost of Services in the Comprehensive Income and Expenditure Statement85

This reconciliation shows how the figures in the analysis of [directorate] income and expenditure relate to the amounts included in the Comprehensive Income and Expenditure Statement.

20X0/X1

£000

20X1/X2

£000

Net expenditure in the [Directorate] Analysis x x

Net expenditure of services and support services not included in the Analysis x x

Amounts in the Comprehensive Income and Expenditure Statement not reported to management in the Analysis x x

Amounts included in the Analysis not included in the Comprehensive Income and Expenditure Statement x x

Cost of Services in Comprehensive Income and Expenditure Statement x x



Reconciliation to Subjective Analysis86

This reconciliation shows how the figures in the analysis of [directorate] income and expenditure relate to a subjective analysis of the Surplus or Deficit on the Provision of Services included in the Comprehensive Income and Expenditure Statement.

20X1/X2

[Dir

ecto

rate

] Ana

lysi

s £0

00

Serv

ices

and

Sup

port

Se

rvic

es n

ot in

An

alys

is

£000

Amou

nts

not r

epor

ted

to m

anag

emen

t for

de

cisi

on m

akin

g £0

00

Amou

nts

not i

nclu

ded

in I&

E £0

00

Allo

cati

on o

f Re

char

ges

£000

Cost

of S

ervi

ces

£000

Corp

orat

e Am

ount

s £0

00

Tota

l £0

00

Fees, charges & other service income

x x – – x x – x

Surplus or deficit on associates and joint ventures

– – – – – – – –

Interest and investment income

– – – – – – x x

Income from council tax – – – – – – x x

Government grants and contributions

x x – – – x x x

Total income x x – – x x x x

Employee expenses x x x x x x – x

Other service expenses x x – – x x – x

Support Service recharges

x – – – x – – –

Depreciation, amortisation and impairment

– – x – – x – x

Interest Payments – – – – – – x x

Precepts & Levies – – – – – – x x

Payments to Housing Capital Receipts Pool

– – – – – – x x

Gain or Loss on Disposal of Non-current Assets

– – – – – – x x

Total expenditure x x x x x x x x

Surplus or deficit on the provision of services x x x x x x x x



20X0/X1 comparative figures

[Dir

ecto

rate

] Ana

lysi

s £0

00

Serv

ices

and

Sup

port

se

rvic

es n

ot

in A

naly

sis

£000

Amou

nts

not r

epor

ted

to m

anag

emen

t for

de

cisi

on m

akin

g £0

00

Amou

nts

not i

nclu

ded

in I&

E £0

00

Allo

cati

on o

f Re

char

ges

£000

Cost

of

Serv

ices

£0

00

Corp

orat

e Am

ount

s £0

00

Tota

l £0

00

Fees, charges & other service income x x – – x x – x

Surplus or deficit on associates and joint ventures – – – – – – – –

Interest and investment income – – – – – – x x

Income from council tax – – – – – – x x

Government grants and contributions x x – – – x x x

Total income x x – – x x x x

Employee expenses x x x x x x – x

Other service expenses x x – – x x – x

Support Service recharges x – – – x – – –

Depreciation, amortisation and impairment – – x – – x – x

Interest Payments – – – – – – x x

Precepts & Levies – – – – – – x x

Payments to Housing Capital Receipts Pool – – – – – – x x

Gain or Loss on Disposal of Non-current Assets – – – – – – x x

Total expenditure x x x x x x x x

Surplus or deficit on the provision of services x x x x x x x x

[An analysis of segment assets and liabilities – required where an authority reports internally on balances – see paragraph 3.4.2.95 of the Code.]


[30. ACQUIRED AND DISCONTINUED OPERATIONSWhere operations have been acquired or discontinued in the year, paragraph 3.4.4.1(1) of the Code requires disclosure of the nature of the acquired or discontinued operations and details of any outstanding liabilities in respect of discontinued operations.]

31. TRADING OPERATIONSThe Authority has established 32 trading units where the service manager is required to operate in a commercial environment and balance their budget by generating income from other parts of the authority or other organisations. Details of those units with a turnover of greater than £x or a deficit greater than £x in 20X1/X2 are as follows:

20W9/X0a 20X0/X1 20X1/X2

£000 £000 £000 £000 £000 £000The Authority owns and manages the Enterprise Hall shopping centre, generating rental income from letting premises. Management of the centre was awarded to an in-house team following a competitive tender with private sector estates managers. The trading objective is to maximise the surplus.

Cumulative surplus over last three financial years: £x

Turnover x x x

Expenditure x x x

Surplus x x x

The Authority runs its refuse collection service on the basis of an agreement concluded between the service manager and the Environmental Health department following a competitive tender. The trading objective is to break even. The objective includes the recovery of the cost of capital for equipment used by the service, which is not included in these expenditure figures. The charges for 20X0/X1 were £x (£x in 20X0/X1).


Turnover x x x

Expenditure x x x

Deficit x x x


20W9/X0a 20X0/X1 20X1/X2

£000 £000 £000 £000 £000 £000

The Authority lets 40 units in industrial estates located in various parts of the city. As part of the council’s economic development strategy, rents can be set at less than the market rate to support small businesses – the trading objective is to restrict any deficit to less than £x.


Turnover x x x

Expenditure x x x

Deficit x x x

… etc …

The consolidated results of the other XX of the council’s 32 trading units are …b

Turnover x x x

Expenditure x x x

Surplus x x x

Net surplus on trading operations:

x x x

a This column (and the summary figures in the narrative) is only required by paragraph 3.4.4.1(2) of the Code to the extent that authorities in Scotland must disclose the cumulative surplus/deficit over the last three financial years. However, where trading accounts are volatile, it might be useful to provide the extra contextual information in England and Wales.

b The extent to which an authority can aggregate the results of trading accounts will depend on local consideration of materiality and, in Scotland, statutory requirements.

Trading operations are incorporated into the Comprehensive Income and Expenditure Statement. Some are an integral part of one of the Authority’s services to the public (eg refuse collection), whilst others are support services to the Authority’s services to the public (eg schools catering). The expenditure of these operations is allocated or recharged to headings in the Net Operating Expenditure of Continuing Operations. Only a residual amount of the net surplus on trading operations is charged as Financing and Investment Income and Expenditure (see Note 10):87

87. This paragraph is not required by the Code, but is needed to reconcile the figures for all trading accounts to the disclosure about trading accounts in the note to the Comprehensive Income and Expenditure Statement.


20X1/X2

£000

20X0/X1

£000

Net surplus on trading operations x x

Services to the public included in Expenditure of Continuing Operations x x

Support services recharged to Expenditure of Continuing Operations x x

Net surplus credited to Other Operating Expenditure x x

32. AGENCY SERVICES88

The Authority provides payroll services for the Sunnimon Row Police Authority, involving the payment of around £x to employees and £x to Her Majesty’s Revenue and Customs. The Police Authority pays a management fee of approximately 3% of the payments made.

20X1/X2

£000

20X0/X1

£000

Expenditure incurred in providing payroll services to Sunnimon Row Police Authority

x x

Management fee payable by the Police Authority x x

Net surplus arising on the agency arrangement x x

[33. ROAD CHARGING SCHEMES UNDER THE TRANSPORT ACT 2000 [OR TRANSPORT (SCOTLAND) ACT 2001]

Where an authority operates a road charging or workplace charging scheme, paragraph 3.4.5.1(2) of the Code requires a brief explanation of the nature of the scheme, its gross income and expenditure and the net proceeds. As the contents of the note will be dependent on an authority’s interpretation of the accounting requirements for these ring-fenced accounts, an example is not provided.]

34. POOLED BUDGETS89

The Authority has entered into a pooled budget arrangement with Sunnimon Row Trust for the provision of mental health services to meet the needs of people living in the Hanham City area, the services being provided by the Authority or the Trust depending upon the mix required by clients. The Authority and the Trust have an agreement in place for funding these services that will run for five years from 20X0/X1, with the partners contributing funds to the

88. The disclosure is required by paragraph 3.4.4.1(3) of the Code, although the minimum requirement is for income and expenditure figures, not cash flows.



agreed budget equal to 40% and 60% of the budget respectively. The same proportions are used to meet any deficit or share any surplus arising on the pooled budget at the end of each financial year.

The pooled budget is hosted by the Trust on behalf of the two partners to the agreement.

20X1/X2

£000

20X0/X1

£000

Funding provided to the pooled budget:

� the Authority x x

� the Trust x x

x x

Expenditure met from the pooled budget:

� the Authority x x

� the Trust x x

x x

Net surplus arising on the pooled budget during the year

x x

Authority share of 60% of the net surplus arising on the pooled budget x x

35. MEMBERS’ ALLOWANCES90

The Authority paid the following amounts to members of the council during the year.

20X1/X2

£000

20X0/X1

£000

Salaries x x

Allowances x x

Expenses x x

Total x x

90. Required by paragraph 3.4.4.1(5) of the Code. The example follows the minimum requirements for Scotland. Authorities in England and Wales are required only to disclose the total of members’ allowances and expenses.


36. OFFICERS’ REMUNERATION91

The remuneration paid to the Authority’s senior employees is as follows:

Salary, Fees and

Allowances

£

Bonuses

£

Expenses Allowances

£

Compensation for Loss of

Office

£

Pension Contribution

£

Total

£

Hedda Paydzerwiz (Chief Executive)

20X1/X2 x x x x x x

20X0/X1 x x x x x x

Iona Ferrari (Director of Children’s Services)

20X1/X2 x x x x x x

20X0/X1 x x x x x x

Director of Adult Social Services

20X1/X2 x x x x x x

20X0/X1 x x x x x x

Chief Education Officer

20X1/X2 x x x x x x

20X0/X1 x x x x x x

Director of Finance

20X1/X2 x x x x x x

20X0/X1 x x x x x x

Director of This

20X1/X2 x x x x x x

20X0/X1 x x x x x x

Director of That

20X1/X2 x x x x x x

20X0/X1 x x x x x x

The Chief Executive provides services for both the Authority and the local Police and Crime Commissioner. She is formally employed by the Authority and the Police and Crime Commissioner is recharged 40% of her salary and other remuneration.

The Director of Adult Social Services resigned with effect from 31 January 20X2.

91. Required by paragraphs 3.4.4.1(6(a)) and 3.4.5.1 of the Code. The individual disclosures for higher paid officers are only mandatory in England and Wales. The disclosures of remuneration for relevant persons, eg senior employees, senior councillors and senior police officers, in Scotland are required to be included in the Remuneration Report – see relevant legislation and guidance issued by the Scottish Government.


The Authority’s other employees receiving more than £50,000 remuneration for the year (excluding employer’s pension contributions) were paid the following amounts:

Remuneration band 20X1/X2 Number of employees

20X0/X1 Number of employees

£50,000 – £54,999 x x

£55,000 – £59,999 x x

£60,000 – £64,999 x x

£65,000 – £69,999 x x

£70,000 – £74,999 x x

£75,000 – £79,999 x x

£80,000 – £84,999 x x

The numbers of exit packages with total cost per band and total cost of the compulsory and other redundancies are set out in the table below:92

(a) (b) (c) (d) (e)

Exit package cost band (including

special payments)

Number of compulsory redundancies

Number of other departures agreed

Total number of exit packages by cost band

[(b) + (c)]

Total cost of exit packages in each band

20X0/X1 20X1/X2 20X0/X1 20X1/X2 20X0/X1 20X1/X2 20X0/X1 20X1/X2

£0 – £20,000 x x x x x x £x £x

£20,001 – £40,000

x x x x x x £x £x

£40,001 – £60,000

x x x x x x £x £x

£60,001 – £80,000

x x x x x x £x £x

£80,001 – £100,000

x x x x x x £x £x

£100,000 – £150,000

x x x x x x £x £x

Total cost included in

bandings and in the CIES

£x £x

The total cost of £x in the table above includes £x for exit packages that have been charged to the Authority’s Comprehensive Income and Expenditure Statement in the current year.



37. EXTERNAL AUDIT COSTS93

The Authority has incurred the following costs in relation to the audit of the Statement of Accounts, certification of grant claims and statutory inspections and to non-audit services provided by the Authority’s external auditors:

20X1/X2

£000

20X0/X1

£000

Fees payable to [external auditors] with regard to external audit services carried out by the appointed auditor for the year

x x

Fees payable to [external auditors] in respect of statutory inspections x x

Fees payable to [external auditors] for the certification of grant claims and returns for the year

x x

Fees payable in respect of other services provided by [external auditors] during the year

x x

Total x x

The fees for other services payable in both 20X0/X1 and 20X1/X2 related to specialist advice on a successful claim against HM Revenue & Customs for the refund of VAT.

[38. DEDICATED SCHOOLS GRANTEducation authorities in England are required by the Accounts and Audit (England) Regulations 2011 and paragraph 3.4.5.1(3) of the Code to include a note demonstrating whether the Dedicated Schools Grant has been deployed in accordance with regulations. An illustration is included in Module 3 of the Guidance Notes.]



39. GRANT INCOMEThe Authority credited the following grants, contributions and donations to the Comprehensive Income and Expenditure Statement in 20X1/X2:94,95

20X1/X2

£000

20X0/X1

£000

Credited to Taxation and Non-specific Grant Income and Expenditure

Grant A x x

Grant B x x

Grant C x x

Other grants x x

Contribution A x x

Other contributions x x

Donation A x x

Total x x

Credited to Services

Grant D x x

Grant E x x

Grant F x x

Other grants x x

Donation B x x

Total x x

The Authority has received a number of grants, contributions and donations that have yet to be recognised as income as they have conditions attached to them that will require the monies or property to be returned to the giver. The balances at the year-end are as follows:96


95. Authorities will need to include appropriate description in the detail of the grants to meet the requirements of paragraph 2.3.4.1(1)(b) of the Code.

96. Required by paragraph 2.3.4.1(1)(c) of the Code.


Current Liabilities

31 March 20X2

£000

Grants Receipts in Advance (Capital Grants)

Grant G x

Grant H x

Other grants x

Contribution A x

Other contributions x

Donation A x

Total x

Donated Assets Account

Donation C x

Donation D x

Other donations x

Total x

31 March 20X2

£000

Grants Receipts in Advance (Revenue Grants)

Grant R x

Grant S x

Total x


Current Liabilities

31 March 20X1

£000


Grant Y x

Grant Z x

Other grants x

Contribution S x

Other contributions x

Donation X x

Total x


Donation M x

Donation P x

Other donations x

Total x

31 March 20X1

£000


Grant Y x

Grant Z x

Total x

Long-term Liabilities

31 March 20X2

£000


Grant T x

Contribution Y x

Donation A x

Total x


Donation D x

Total x


31 March 20X2

£000


Grant J x

Grant K x

Total x

Long-term Liabilities

31 March 20X1

£000


Grant E x

Contribution J x

Donation N x

Total x


Donation G x

Total x

31 March 20X2

£000


Grant E x

Grant F x

Total x

40. RELATED PARTIES97

The Authority is required to disclose material transactions with related parties – bodies or individuals that have the potential to control or influence the council or to be controlled or influenced by the council. Disclosure of these transactions allows readers to assess the extent to which the council might have been constrained in its ability to operate independently or might have secured the ability to limit another party’s ability to bargain freely with the Authority.



Central Government98

Central government has significant influence over the general operations of the Authority – it is responsible for providing the statutory framework within which the Authority operates, provides the majority of its funding in the form of grants and prescribes the terms of many of the transactions that the Authority has with other parties (eg council tax bills, housing benefits). Grants received from government departments are set out in the subjective analysis in Note 29 on reporting for resources allocation decisions. Grant receipts outstanding at 31 March 20X2 are shown in Note 39.

Members

Members of the council have direct control over the council’s financial and operating policies.99 The total of members’ allowances paid in 20X1/X2 is shown in Note 35. During 20X1/X2, works and services to the value of £x were commissioned from companies in which three members had an interest. Contracts were entered into in full compliance with the council’s standing orders. In addition, the Cultural Services Committee paid grants totalling £x to voluntary organisations in which six members had positions on the governing body. Grants totalling £x were also made to organisations whose senior management included close members of the families of members. In all instances, the grants were made with proper consideration of declarations of interest. The relevant members did not take part in any discussion or decision relating to the grants. Details of all these transactions are recorded in the Register of Members’ Interest, open to public inspection at the Town Hall during office hours.

Officers

During 20X1/X2, the Chief Executive declared a pecuniary interest in accordance with section 117 of the Local Government Act 1972 in a grant of £x paid by the Cultural Services Committee to a sporting association. The Chief Executive did not take part in any discussion, decision or administration relating to the grant.

Other Public Bodies [subject to common control by central government]

The Authority has a pooled budget arrangement with Sunnimon Row Trust for the provision of mental health services. Transactions and balances outstanding are detailed in Note 34.

The Authority’s Director of Children’s Services holds the same appointment at Waverley Place Council. During 20X1/X2 the Authority provided education services to Waverley Place to the value of £x. Of this amount, £x remained unpaid at 31 March 20X2.

[Pension fund – details required where the authority is an administering authority.]

98. Note that the central government description should describe the government administration relevant to the body that has significant influence over the authority, eg Welsh Government, Scottish Government.

99. Members as a group are required to be identified as related parties. The aggregation option for individual transactions has been taken on the basis that the council has satisfied itself that all the transactions entered into have been concluded in accordance with its procedures for preventing undue influence.


Entities Controlled or Significantly Influenced by the Authority

Payment of subsidy of £x was made to Belle Leisure Trust in 20X1/X2, conditional on long-term agreements for the daytime use of pools and leisure centres by schools without charge. Payments for residential care of £x was made in 20X1/X2 to Sebastian Care Trust as part of contracts under which the council has 100% of nomination rights for available beds. The Trusts are deemed to be influenced significantly by the Authority through its representation on the Trust board.

The Authority controls Hanham-on-Tanner Fame Handling Academy Ltd through its ownership of 100% of the shares in the Company. 20X1/X2 was the first year of operation. The Authority purchased member training services to the value of £x from the Company in 20X1/X2 (£x of which was unpaid at 31 March 20X2) and has provided a loan of £x to for the acquisition of premises. The loan is repayable on maturity in 20X6/X7 and interest is charged at x%, a rate negotiated at arm’s length.

41. CAPITAL EXPENDITURE AND CAPITAL FINANCING100

The total amount of capital expenditure incurred in the year is shown in the table below (including the value of assets acquired under finance leases and PFI contracts), together with the resources that have been used to finance it. Where capital expenditure is to be financed in future years by charges to revenue as assets are used by the Authority, the expenditure results in an increase in the Capital Financing Requirement (CFR), a measure of the capital expenditure incurred historically by the Authority that has yet to be financed. The CFR is analysed in the second part of this note.

20X1/X2 £000

20X0/X1 £000

Opening Capital Financing Requirement x x

Capital investmenta

Property, Plant and Equipment x x

Investment Properties x x

Intangible Assets x x

Revenue Expenditure Funded from Capital under Statute101 x x

Sources of finance

Capital receipts x x

Government grants and other contributions x x

Sums set aside from revenue:

100. Required by paragraph 4.1.4.3(5) of the Code. A simpler version of the note would omit the opening and closing position on the Capital Financing Requirement and balance the statement by showing the amounts of capital expenditure met from borrowing or in the form of creditors. The Capital Financing Requirement would then need to be disclosed separately.



Direct revenue contributions x x

[MRP/loans fund principal] x x

Closing Capital Financing Requirement x x

Explanation of movements in year

Increase in underlying need to borrowing (supported by government financial assistance)

x x

Increase in underlying need to borrowing (unsupported by government financial assistance)

x x

Assets acquired under finance leases x x

Assets acquired under PFI contracts x x

Increase/(decrease) in Capital Financing Requirement x x

a These figures should match to the Additions lines in the notes detailing movements on the non-current asset balances.

42. LEASES

Authority as Lessee

Finance Leases

The Council has acquired a number of administrative buildings and its IT and telecommunications system under finance leases.

The assets acquired under these leases are carried as Property, Plant and Equipment in the Balance Sheet at the following net amounts:102

31 March 20X2

£000

31 March 20X1

£000

Other Land and Buildings x x

Vehicles, Plant, Furniture and Equipment x x

x x

The Authority is committed to making minimum payments under these leases comprising settlement of the long-term liability for the interest in the property acquired by the Authority and finance costs that will be payable by the Authority in future years while the liability remains outstanding. The minimum lease payments are made up of the following amounts:103


103. Reconciliation required by paragraph 4.2.4.2(2) of the Code.


31 March 20X2

£000

31 March 20X1

£000

Finance lease liabilities (net present value of minimum lease payments):

� current

� non-current

x

x

x

x

Finance costs payable in future years x x

Minimum lease payments x x

The minimum lease payments will be payable over the following periods:

Minimum Lease Payments Finance Lease Liabilities

31 March 20X2

£000

31 March 20X1

£000

31 March 20X2

£000

31 March 20X1

£000

Not later than one year x x x x

Later than one year and not later than five years

x x x x

Later than five years x x x x

x x x x

The minimum lease payments do not include rents that are contingent on events taking place after the lease was entered into, such as adjustments following rent reviews. In 20X1/X2 £x contingent rents were payable by the Authority (20X0/X1 £x).104

The Authority has sub-let some of the office accommodation held under these finance leases. At 31 March 20X2 the minimum payments expected to be received under non-cancellable sub-leases was £x (£x at 31 March 20X1).105




Operating Leases

The Authority has acquired its fleet of refuse collection vehicles by entering into operating leases, with typical lives of seven years.

The future minimum lease payments due under non-cancellable leases in future years are:106

31 March 20X2

£000

31 March 20X1

£000

Not later than one year x x

Later than one year and not later than five years x x

Later than five years x x

x x

[Where assets acquired under operating leases are sub-let, disclosure is required of the future minimum sublease payments expected to be received by the Authority, per paragraph 4.2.4.2(7) of the Code.]

The expenditure charged to the Environmental and Regulatory Services line in the Comprehensive Income and Expenditure Statement during the year in relation to these leases was:107

20X1/X2

£000

20X0/X1

£000

Minimum lease payments x x

Contingent rents x x

[Sublease payments receivable] (x) (x)

x x

Authority as Lessor

Finance Leases

The Authority has leased out property at the Best of Both Worlds Shopping Centre to Rico Commercial Ventures on a finance lease with a remaining term of 50 years.108

The Authority has a gross investment in the lease, made up of the minimum lease payments expected to be received over the remaining term and the residual value anticipated for the property when the lease comes to an end. The minimum lease payments comprise settlement of the long-term debtor for the interest in the property acquired by the lessee and





finance income that will be earned by the Authority in future years whilst the debtor remains outstanding. The gross investment is made up of the following amounts:109

31 March 20X2

£000

31 March 20X1

£000

Finance lease debtor (net present value of minimum lease payments):

� current

� non-current

x

x

x

x

Unearned finance incomea x x

Unguaranteed residual value of propertyb x x

Gross investment in the lease x x

a Detail required by paragraph 4.2.4.2(10) of the Code.

b Detail required by paragraph 4.2.4.2(11) of the Code.

The gross investment in the lease and the minimum lease payments will be received over the following periods:

Gross Investment in the Lease Minimum Lease Payments

31 March 20X2

£000

31 March 20X1

£000

31 March 20X2

£000

31 March 20X1

£000

Not later than one year x x x x

Later than one year and not later than five years

x x x x

Later than five years x x x x

x x x x

As there is a possibility that worsening financial circumstances might result in lease payments not being made, the Authority has set aside an allowance for uncollectable amounts of £x (£x at 31 March 20X1).110

The minimum lease payments do not include rents that are contingent on events taking place after the lease was entered into, such as adjustments following rent reviews. In 20X1/X2 £x contingent rents were receivable by the Authority (20X0/X1 £x).111

Operating Leases

The Authority leases out property and equipment under operating leases for the following purposes:

� for the provision of community services, such as sports facilities, tourism services and community centres

109. Reconciliation required by paragraph 4.2.4.2(9) of the Code.




� for economic development purposes to provide suitable affordable accommodation for local businesses.112

The future minimum lease payments receivable under non-cancellable leases in future years are:113

31 March 20X2

£000

31 March 20X1

£000

Not later than one year x x

Later than one year and not later than five years x x

Later than five years x x

x x

The minimum lease payments receivable do not include rents that are contingent on events taking place after the lease was entered into, such as adjustments following rent reviews. In 20X1/X2 £x contingent rents were receivable by the Authority (20X0/X1 £x).114

43. PRIVATE FINANCE INITIATIVES (PFI)115 AND SIMILAR CONTRACTS

Leisure Services PFI Scheme

20X1/X2 was the fifth year of a 25-year PFI contract for the construction, maintenance and operation of the two leisure centres in Hanham City and Jacksonville. The Authority has rights under the contract to specify the activities offered by the centres between 10am and 6pm and control the prices charged for them and also has certain exclusive use rights for the use of the centres by schools during specific times during school terms. The contract specifies minimum standards for the services to be provided by the contractor, with deductions from the fee payable being made if facilities are unavailable or performance is below the minimum standards. The contractor took on the obligation to construct the centres and maintain them in a minimum acceptable condition and to procure and maintain the plant and equipment needed to operate the centres. The buildings and any plant and equipment installed in them at the end of the contract will be transferred to the Authority for nil consideration. The Authority only has rights to terminate the contract if it compensates the contractor in full for costs incurred and future profits that would have been generated over the remaining term of the contract.116




115. These are referred to in the Code as service concession arrangements but are commonly known as PFI schemes.

116. Required by paragraph 4.3.4.3(1) and (3) of the Code. Where an authority has more than one class of PFI scheme, separate disclosure for each class is required.


[Changes in the arrangements during the year.]

Property, Plant and Equipment

The assets used to provide services at the leisure centres are recognised on the Authority’s Balance Sheet. Movements in their value over the year are detailed in the analysis of the movement on the Property, Plant and Equipment balance in Note 12.117

Payments

The Authority makes an agreed payment each year which is increased each year by inflation and can be reduced if the contractor fails to meet availability and performance standards in any year but which is otherwise fixed.118 Payments remaining to be made under the PFI contract at 31 March 20X2 (excluding any estimation of inflation and availability/performance deductions) are as follows:119

Payment for Services

£000

Reimbursement of Capital

Expenditure

£000

Interest

£000

Total

£000

Payable in 20X2/X3 x x x x

Payable within 2 to 5 years x x x x



Payable within 16 to 20 yearsa x x x x

Total x x x x

a This analysis continues in steps of five years for as long as amounts remain payable.

Although the payments made to the contractor are described as unitary payments, they have been calculated to compensate the contractor for the fair value of the services they provide, the capital expenditure incurred and interest payable whilst the capital expenditure remains to be reimbursed. The liability outstanding to be paid to the contractor for capital expenditure incurred is as follows:120

20X1/X2

£000

20X0/X1

£000

Balance outstanding at start of year x x

Payments during the year x x

Capital expenditure incurred in the year x x

[Other movements] x x

Balance outstanding at year-end x x






44. IMPAIRMENT LOSSES[Paragraph 4.7.4.2(1) of the Code requires disclosure by class of assets of the amounts for impairment losses and impairment reversals charged to the Surplus or Deficit on the Provision of Services and to Other Comprehensive Income and Expenditure. These disclosures are consolidated in Notes 12 and 15 reconciling the movement over the year in the Property, Plant and Equipment and Intangible Asset balances.]

During 20X1/X2, the Authority has recognised an impairment loss of £x in relation to its refuse collection vehicles. The vehicles have been specially adapted for the Authority’s use and cannot be sold to another prospective user, but upgrades to the Authority’s other waste processing facilities mean that the vehicles cannot now be used to their full capability and capacity. The recoverable amount of the vehicles has been reduced to their value in use and the impairment loss charged to the Environmental and Regulatory Services line in the Comprehensive Income and Expenditure Statement. Value in use was determined by assessing how much the Authority would have to pay to acquire the service potential of the vehicles that is actually now capable of being used.

45. CAPITALISATION OF BORROWING COSTS[Where an authority has capitalised borrowing costs, paragraph 4.8.4.2 of the Code requires disclosure of the amount of borrowing costs capitalised during the year and the capitalisation rate used to determine the amount of eligible borrowing costs.]

46. TERMINATION BENEFITS121,122

The Authority terminated the contracts of a number of employees in 20X1/X2, incurring liabilities of £x (£x in 20X0/X1) – see Note 36 for the number of exit packages and total cost per band. Of this total, £x is payable to Director X and £y is payable to Director Y in the form of compensation for loss of office and enhanced pension benefits of £x, as disclosed in Note 36. The remaining £x is payable to x officers from the Libraries Service and y officers from Finance and Resources Directorate who were made redundant as part of the Authority’s rationalisation of these Services.

47. PENSIONS SCHEMES ACCOUNTED FOR AS DEFINED CONTRIBUTION SCHEMES123

Teachers employed by the Authority are members of the Teachers’ Pension Scheme, administered [by Capita Teachers’ Pensions on behalf of the Department for Education (DfE) or by the Scottish Government]. The Scheme provides teachers with specified benefits upon


122. It is recommended that in the interests of ’cutting clutter in the financial statements, the exit package disclosure is amalgamated with the requirements of paragraph 6.3.3.1 of the Code in relation to the disclosure of termination benefits, where material.

123. Required by paragraphs 6.4.2.3, 6.4.2.4 and 6.4.2.14 of the Code.


their retirement, and the Authority contributes towards the costs by making contributions based on a percentage of members’ pensionable salaries.

The scheme is a multi-employer defined benefit scheme. The scheme is unfunded and the Department for Education uses a notional fund as the basis for calculating the employers’ contribution rate paid by local authorities. Valuations of the notional fund are undertaken every four years.

The scheme has in excess of 3,700 participating employers and consequently the Authority is not able to identify its share of the underlying financial position and performance of the scheme with sufficient reliability for accounting purposes. For the purposes of this Statement of Accounts, it is therefore accounted for on the same basis as a defined contribution scheme. As a proportion of the total contributions into the Teachers’ Pension Scheme during the year ending 31 March 20X2, the Authority’s own contributions equate to approximately x%.

In 20X1/X2, the county council paid £x to Teachers’ Pensions in respect of teachers’ retirement benefits, representing 7.98% of pensionable pay. The figures for 20X0/X1 were £x and 7.45%. There were no contributions remaining payable at the year-end. The contributions due to be paid in the next financial year are estimated to be £x.

The Authority is responsible for the costs of any additional benefits awarded upon early retirement outside of the terms of the teachers’ scheme. These costs are accounted for on a defined benefit basis and detailed in Note 48.

The Authority is not liable to the scheme for any other entities obligations under the plan.

48. DEFINED BENEFIT PENSION SCHEMES124,125

Participation in Pension Schemes126

As part of the terms and conditions of employment of its officers, the Authority makes contributions towards the cost of post-employment benefits. Although these benefits will not actually be payable until employees retire, the Authority has a commitment to make the payments (for those benefits) and to disclose them at the time that employees earn their future entitlement.

The Authority participates in two post-employment schemes:

� The Local Government Pension Scheme, administered locally by Auppenchamber County Council – this is a funded defined benefit final salary scheme, meaning that the Authority and employees pay contributions into a fund, calculated at a level intended to balance the pensions liabilities with investment assets.

124. Required by paragraph 6.4.3.42 1) of the Code. See also 6.4.3.42 2) to 4).

125. Note the disclosures required by paragraph 6.4.3.42 1) to 14) have been drafted for the application of the new requirements for IAS 19 in a normal year and do not reflect the requirements of the introduction of a new standard, ie the need to restate the comparative year or, where material restatements of Balance Sheet information might be required, the inclusion of the opening balance for the comparative year (see section D of Module 3 and section D of Module 6).

126. Required by paragraph 6.4.3.42 5) of the Code.


� Arrangements for the award of discretionary post-retirement benefits upon early retirement – this is an unfunded defined benefit arrangement, under which liabilities are recognised when awards are made. However, there are no investment assets built up to meet these pension liabilities, and cash has to be generated to meet actual pension payments as they eventually fall due.

� The XYZ pension scheme is operated under the regulatory framework for the Local Government Pension Scheme and the governance of the scheme is the responsibility of the pensions committee of Auppenchamber County Council. Policy is determined in accordance with the Pensions Fund Regulations. The investment managers of the fund are appointed by the committee and consist of the director of finance and resources of Auppenchamber and Barnabus Investment Fund managers.

� The principal risks to the authority of the scheme are the longevity assumptions, statutory changes to the scheme, structural changes to the scheme (ie large-scale withdrawals from the scheme), changes to inflation, bond yields and the performance of the equity investments held by the scheme. These are mitigated to a certain extent by the statutory requirements to charge to the General Fund and Housing Revenue Account the amounts required by statute as described in the accounting policies note.

Discretionary Post-retirement Benefits

Discretionary post-retirement benefits on early retirement are an unfunded defined benefit arrangement, under which liabilities are recognised when awards are made. There are no plan assets built up to meet these pension liabilities.

Transactions Relating to Post-employment Benefits127, 128

We recognise the cost of retirement benefits in the reported cost of services when they are earned by employees, rather than when the benefits are eventually paid as pensions. However, the charge we are required to make against council tax is based on the cash payable in the year, so the real cost of post-employment/retirement benefits is reversed out of the General Fund [and Housing Revenue Account] via the Movement in Reserves Statement. The following transactions have been made in the Comprehensive Income and Expenditure Statement and the General Fund Balance via the Movement in Reserves Statement during the year.:129130

Local Government Pension Scheme

£000

Discretionary Benefits Arrangements

£000129

20X1/X2 20X0/X1 20X1/X2 20X0/X1

Comprehensive Income and Expenditure Statement130

127. Required by paragraph 6.4.3. 42 5), 6) and 7) of the Code.

128. Per paragraph E6 of Module 6, some discretionary benefits may not be post-employment benefits. However, for effective reporting they have been included in this disclosure. Authorities may wish to make this clear in their financial statements

129. Please refer to footnote 128 above.

130. Required by paragraphs 6.4.3.27 and 6.4.3.42 6) of the Code.



£000


£000129

20X1/X2 20X0/X1 20X1/X2 20X0/X1

Cost of Services:

Service cost comprising:

� current service cost x x x x

� past service costs x x x x

� (gain)/loss from settlements x x x x

Financing and Investment Income and Expenditure

Net interest expense x x x x

Total Post-employment Benefits charged to the Surplus or Deficit on the Provision of Services

x x x x

Other Post-employment Benefits charged to the Comprehensive Income and Expenditure Statement

Remeasurement of the net defined benefit liability comprising:

� Return on plan assets (excluding the amount included in the net interest expense)

x x x x

� Actuarial gains and losses arising on changes in demographic assumptions

x x x x

� Actuarial gains and losses arising on changes in financial assumptions

x x x x

� Other (if applicable) x x x x

Total Post-employment Benefits charged to the Comprehensive Income and Expenditure Statement

x x x x

Movement in Reserves Statement

� reversal of net charges made to the Surplus or Deficit on the Provision of Services for post-employment benefits in accordance with the Code131

x x x x

Actual amount charged against the General Fund Balance for pensions in the year:

Employers’ contributions payable to scheme x x

Retirement benefits payable to pensioners x x

131

131. Required by paragraphs 6.4.3.38 to 6.4.3.41 of the Code.


Pensions Assets and Liabilities Recognised in the Balance Sheet132

The amount included in the Balance Sheet arising from the authority’s obligation in respect of its defined benefit plans is as follows:


£000


£000

20X1/X2 20X0/X1 20X1/X2 20X0/X1

Present value of the defined benefit obligation

x x x x

Fair value of plan assets (x) (x) (x) (x)

Sub-total x x x x

Other movements in the liability (asset) (if applicable)

– – – –

Net liability arising from defined benefit obligation

x x x x

Reconciliation of the Movements in the Fair Value of Scheme (Plan) Assets133


£000


£000

20X1/X2 20X0/X1 20X1/X2 20X0/X1

Opening fair value of scheme assets x x x x

Interest income x x x x

Remeasurement gain/(loss):

� The return on plan assets, excluding the amount included in the net interest expense

x x x x

� Other (if applicable) – – – –

The effect of changes in foreign exchange rates x x x x

Contributions from employer x x x x

Contributions from employees into the scheme x x x x

Benefits paid (x) (x) (x) (x)

Other (if applicable) – – – –

Closing fair value of scheme assets x x x x


133. Required by paragraphs 6.4.3.42 6) and 6.4.3.42 7) of the Code.


Reconciliation of Present Value of the Scheme Liabilities (Defined Benefit Obligation)134

Funded Liabilities: Local Government

Pension Scheme £000

Unfunded Liabilities:

Discretionary Benefits £000

20X1/X2 20X0/X1 20X1/X2 20X0/X1

Opening balance at 1 April x x x x

Current service cost x x x x

Interest cost x x x x

Contributions from scheme participants

x x – –

Remeasurement (gains) and losses:

� Actuarial gains/losses arising from changes in demographic assumptions

x x x x

� Actuarial gains/losses arising from changes in financial assumptions

x x x x

� Other (if applicable) – – – –

Past service cost x x x x

Losses/(gains) on curtailment (where relevant)

– – – –

Liabilities assumed on entity combinations

x x x x

Benefits paid (x) (x) (x) (x)

Liabilities extinguished on settlements (where relevant)

(x) (x) (x) (x)

Closing balance at 31 March

x x x x

134. Required by paragraph 6.4.3.42 6) and 7) of the Code.


Local Government Pension Scheme assets comprised:135

Fair value of scheme assetsa

20X1/X2 20X0/X1

£000 £’000

Cash and cash equivalents x x

Equity instruments:

By industry type136, b

� Consumer x x

� Manufacturing x x

� Energy and utilities x x

� Financial institutions x x

� Health and care x x

� Information technology x x

Sub-total equity x x

Bonds:

By sector137

� Corporate x x

� Government x x

Sub-total bonds x x

Property:

By type138

� Retail x x

� Commercial x x

� Residential x x

Sub-total property x x


136. Note that this example features a particular format to analyse risk in the scheme assets. It might be that this does not reflect the risk profile for the assets in question for an individual authority. Authorities will need to reflect the appropriate risk profile for each asset categorisation. In order to demonstrate this for their own circumstances, authorities may need to use one or more alternative formats.

137. See footnote 134.

138. See footnote 134.


Private equity:

UK x x

Overseas x x

Sub-total private equity x x

Other investment funds:

� Infrastructure x x

� Property x x

Sub-total other investment funds x x

Derivatives:

� Forward foreign exchange contracts x x

Total assets x x

a All scheme assets have quoted prices in active markets.139

b The risks relating to assets in the scheme are also analysed by company size below:

Fair value of scheme assets

20X1/X2 20X0/X1

£000 £000

Equity instruments:

By company size

� Large capitalisation x x

� Small capitalisation x x

� AIM-listed x x

Sub-total equity instruments x x

139. Where scheme assets are not from quoted active markets, these need to be separately presented in the note.


Basis for Estimating Assets and Liabilities140

Liabilities have been assessed on an actuarial basis using the projected unit credit method, an estimate of the pensions that will be payable in future years dependent on assumptions about mortality rates, salary levels, etc.

Both the Local Government Pension Scheme and discretionary benefits liabilities have been estimated by IA Essnine, Dean and Partners, an independent firm of actuaries, estimates for the County Council Fund being based on the latest full valuation of the scheme as at 1 April 20X3.

The significant assumptions used by the actuary have been:141


Discretionary Benefits

20X1/X2 20X0/X1 20X1/X2 20X0/X1

Long-term expected rate of return on assets in the scheme:

Equity investments 8.4% 8.7% – –

Bonds 4.9% 4.8% – –

Other 4.5% 4.7% – –

Mortality assumptions:

Longevity at 65 for current pensioners:

� Men 19.3 18.9 16.4 16.4

� Women 22.3 22.1 20.3 20.1

Longevity at 65 for future pensioners:

� Men 21.2 21.0 – –

� Women 23.3 23.2 – –

Rate of inflation 2.7% 2.8% 2.7% 2.8%

Rate of increase in salaries 4.5% 4.3% – –

Rate of increase in pensions 2.7% 2.8% 2.7% 2.8%

Rate for discounting scheme liabilities 6.1% 6.2% 6.1% 6.2%

140. Required by paragraph 6.4.3.42 5) b) of the Code.



The estimation of the defined benefit obligations is sensitive to the actuarial assumptions set out in the table above. The sensitivity analyses below have been determined based on reasonably possible changes of the assumptions occurring at the end of the reporting period142 and assumes for each change that the assumption analysed changes while all the other assumptions remain constant.143 The assumptions in longevity, for example, assume that life expectancy increases or decreases for men and women. In practice, this is unlikely to occur, and changes in some of the assumptions may be interrelated. The estimations in the sensitivity analysis have followed the accounting policies for the scheme, ie on an actuarial basis using the projected unit credit method. The methods and types of assumptions used in preparing the sensitivity analysis below did not change from those used in the previous period.

Impact on the Defined Benefit Obligation in the Scheme

Increase in Assumption

£000

Decrease in Assumption

£000

Longevity (increase or decrease in 1 year) x (x)

Rate of inflation (increase or decrease by 1%) x (x)

Rate of increase in salaries (increase or decrease by 1%) x (x)

Rate of increase in pensions (increase or decrease by 1%) x (x)

Rate for discounting scheme liabilities (increase or decrease by 1%)

(x) x

Asset and Liability Matching (ALM) Strategy (where applicable)144,145

Paragraph 6.4.3.42 12) of the Code requires authorities to disclose a description of any asset–liability matching strategies used by the plan or the authority, including the use of annuities and other techniques, such as longevity swaps, to manage risk. To assist with this, authorities may wish to refer to the table at paragraph D33 (row 12) in Module 6 of these guidance notes and IAS 19. The disclosure will need to reflect the individual circumstances of the authority.


143. It should be noted that a whole percentage point increase may not be appropriate for all schemes and a reasonable and appropriate rate of change would need to be applied for the assumptions in the relevant scheme.

144. Where a pension fund has engaged upon an asset and liability matching (ALM) strategy, the above disclosure is required and will need to reflect the fund’s ALM strategy. If a formal ALM strategy is not adopted authorities would need to provide information on the use of other techniques used to manage risk. The Code uses the examples of annuities or longevity swaps. However, practitioners should seek to confirm which approach and what information is relevant with their pension fund administrator.

145. Required by paragraph 6.4.3.42 12) of the Code. This disclosure will need to reflect the ALM for the scheme participated in by the individual authority.


Impact on the Authority’s Cash Flows146 The objectives of the scheme are to keep employers’ contributions at as constant a rate as possible. The County Council has agreed a strategy with the scheme’s actuary to achieve a funding level of 100% over the next X years. Funding levels are monitored on an annual basis. The next triennial valuation is due to be completed on 31 March 20X4.

The scheme will need to take account of the national changes to the scheme under the Public Pensions Services Act 2013. Under the Act, the Local Government Pension Scheme in England and Wales and the other main existing public service schemes may not provide benefits in relation to service after 31 March 2014 (or service after 31 March 2015 for other main existing public service pension schemes in England and Wales). The Act provides for scheme regulations to be made within a common framework, to establish new career average revalued earnings schemes to pay pensions and other benefits to certain public servants.

The authority anticipated to pay £x expected contributions to the scheme in 20X2/20X3.

The weighted average duration147 of the defined benefit obligation for scheme members is X years, 20X1/X2 (Y years 20X0/20X1).

49. CONTINGENT LIABILITIES148

At 31 March 20X2, the Authority had two material contingent liabilities:

� The Government has announced an intention to make skateboarding illegal. The Authority has spent £x on works to build a skateboarding park in Hanham City that would have to be written off if the legislation is introduced. However, the Skateboarding (Prevention) Bill is having a difficult passage through Parliament and the probability is that it will not now be enacted. No provision has thus been made for this contingency.

� In February 20X2 the Authority submitted a formal bid to host the Pet Olympics. The Olympic Committee will decide whether to award the right to host the event to Hanham City or to Chihuahua in Mexico in December 20X2. If the Authority wins the bid, it will be required to incur expenditure estimated at £x on new Olympic-standard facilities for the pony gymkhana and snail racing.

50. CONTINGENT ASSETS149

Dodd, Geef and Ayshons plc completed construction of a bridge for the Authority in September 20X0. The Authority deemed that the structure was not safe when it was handed over. The Company refused to carry out rectification work and an alternative contractor was engaged at a cost of £x. On the advice of the Authority’s legal experts that it is probable that

146. Required by paragraph 6.4.3.42 13) of the Code and should reflect the individual circumstances of the impact on the authority’s cash flows.

147. Paragraph 6.4.3.42 1) to 3) of the Code may require further analysis of the weighted average duration of the defined obligation for scheme members and may require a break down over current members, deferred members and pensioners.




damages will be awarded to the Authority, a claim has been made against the Company for this amount. The claim is due to be heard by the courts in early 20X3.

51. NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS150

The Authority’s activities expose it to a variety of financial risks:

� credit risk – the possibility that other parties might fail to pay amounts due to the Authority

� liquidity risk – the possibility that the Authority might not have funds available to meet its commitments to make payments

� market risk – the possibility that financial loss might arise for the Authority as a result of changes in such measures as interest rates and stock market movements.

The Authority’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the resources available to fund services. Risk management is carried out by a central treasury team, under policies approved by [the council] in the [annual treasury management strategy]. [The council] provides written principles for overall risk management, as well as written policies covering specific areas, such as interest rate risk, credit risk and the investment of surplus cash.

Credit Risk151

Credit risk arises from deposits with banks and financial institutions, as well as credit exposures to the authority’s customers.

This risk is minimised through the Annual Investment Strategy, which requires that deposits are not made with financial institutions unless they meet identified minimum credit criteria, as laid down by Mitch and Foody’s Ratings Services. The Annual Investment Strategy also imposes a maximum sum to be invested with a financial institution located within each category.

The credit criteria in respect of financial assets held by the authority are as detailed below:

[Insert details of local policy, covering such things as minimum credit ratings required, maximum amounts to be lent to category of lender or individual lender, geographical limitation.]

Customers for goods and services 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 [the council].

The Authority’s maximum exposure to credit risk in relation to its investments in banks and building societies of £x cannot be assessed generally as the risk of any institution failing to make interest payments or repay the principal sum will be specific to each individual

150. Required by paragraph 7.4.3.1 of the Code, as detailed for qualitative disclosures in paragraph 7.4.3.3, for quantitative disclosures in paragraph 7.4.3.4, and where quantitative data at the end of the year is unrepresentative of exposure to risk during the year in paragraph 7.4.3.5.



institution. Recent experience has shown that it is rare for such entities to be unable to meet their commitments. A risk of irrecoverability applies to all of the Authority’s deposits, but there was no evidence at the 31 March 20X2 that this was likely to crystallise. Deposit protection arrangements will limit any losses that might arise to [details].

The following analysis summarises the Authority’s potential maximum exposure to credit risk on other financial assets, based on experience of default and uncollectability over the last five financial years, adjusted to reflect current market conditions. The table excludes a £x 10-year bond issued by [PQR] on which interest payments have been suspended and which the Authority has impaired down to a fair value of zero because the issuing company is in administration:

Amount at 31 March 20X2

£000

Historical experience of

default %

Historical experience

adjusted for market conditions at 31 March 20X2

%

Estimated maximum exposure

to default and uncollectability

at 31 March 20X2 £000

Estimated maximum exposure

at 31 March 20X1 £000

A B C (A x C)

Bonds x x x x x

Customers x x x x x

x x

No credit limits were exceeded during the reporting period and (apart from the bond issued by [PQR]) the authority does not expect any losses from non-performance by any of its counterparties in relation to deposits and bonds.

The Authority does not generally allow credit for customers, such that £x of the £x balance is past its due date for payment. The past due but not impaired amount can be analysed by age as follows:152

31 March 20YY £000

31 March 20XX £000

Less than three months x x

Three to six months x x

Six months to one year x x

More than one year x x

x x

Liquidity Risk153

The authority has a comprehensive cash flow management system that seeks to ensure that cash is available as needed. If unexpected movements happen, the authority has ready access to borrowings from the money markets and the Public Works Loans Board. There is no significant risk that it will be unable to raise finance to meet its commitments under financial

152. Required by paragraphs 7.4.3.7 and 7.4.3.8 of the Code. Further details required if collateral is held for these assets held by the authority, especially if it takes possession of the collateral.



instruments. Instead, the risk is that the authority will be bound to replenish a significant proportion of its borrowings at a time of unfavourable interest rates. The authority sets limits on the proportion of its fixed rate borrowing during specified periods. The strategy is to ensure that no more than x% of loans are due to mature within any rolling three-year period through a combination of careful planning of new loans taken out and (where it is economic to do so) making early repayments. The maturity analysis of financial liabilities is as follows:

31 March 20X2 £000

31 March 20X1 £000

Less than one year x x

Between one and two years x x

Between two and five years x x

More than five yearsa x x

x x

a The bands in the example are illustrative only – more bands should be added (or the bands widened) where the substantial part of the loans are outstanding for more than five years.

All trade and other payables are due to be paid in less than one year.

Market Risk154

Interest Rate Risk

The Authority is exposed to risk in terms of its exposure to interest rate movements on its borrowings and investments. Movements in interest rates have a complex impact on the authority. For instance, a rise in interest rates would have the following effects:

� borrowings at variable rates – the interest expense charged to the Surplus or Deficit on the Provision of Services will rise

� borrowings at fixed rates – the fair value of the liabilities borrowings will fall

� investments at variable rates – the interest income credited to the Surplus or Deficit on the Provision of Services will rise

� investments at fixed rates – the fair value of the assets will fall.

Borrowings are not carried at fair value, so nominal gains and losses on fixed rate borrowings would not impact on the Surplus of Deficit on the Provision of Services or Other Comprehensive Income and Expenditure. However, changes in interest payable and receivable on variable rate borrowings and investments will be posted to the Surplus or Deficit on the Provision of Services and affect the General Fund Balance. Movements in the fair value of fixed rate investments that have a quoted market price will be reflected in Other Comprehensive Income and Expenditure.

The Authority has a number of strategies for managing interest rate risk. Policy is to aim to keep a maximum of x% of its borrowings in variable rate loans. During periods of falling interest rates, and where economic circumstances make it favourable, fixed rate loans will be repaid early to limit exposure to losses. The risk of loss is ameliorated by the fact that a proportion of government grant payable on financing costs will normally move with prevailing



interest rates or the Authority’s cost of borrowing and provide compensation for a proportion of any higher costs.

The treasury management team has an active strategy for assessing interest rate exposure that feeds into the setting of the annual budget and which is used to update the budget quarterly during the year. This allows any adverse changes to be accommodated. The analysis will also advise whether new borrowing taken out is fixed or variable.

According to this assessment strategy, at 31 March 20X2, if interest rates had been 1% higher with all other variables held constant, the financial effect would be:

£000

Increase in interest payable on variable rate borrowings x

Increase in interest receivable on variable rate investments x

Increase in government grant receivable for financing costs x

Impact on Surplus or Deficit on the Provision of Services x

Share of overall impact debited to the HRA x

Decrease in fair value of fixed rate investment assets x

Impact on Other Comprehensive Income and Expenditure x

Decrease in fair value of fixed rate borrowings liabilities (no impact on the Surplus or Deficit on the Provision of Services or Other Comprehensive Income and Expenditure)

x

The impact of a 1% fall in interest rates would be as above but with the movements being reversed.

Price Risk

The Authority does not generally invest in equity shares but does have shareholdings to the value of £x in a number of joint ventures and in local industry. The Authority is consequently exposed to losses arising from movements in the prices of the shares.

As the shareholdings have arisen in the acquisition of specific interests, the Authority is not in a position to limit its exposure to price movements by diversifying its portfolio. Instead it only acquires shareholdings in return for ‘open book’ arrangements with the company concerned so that the authority can monitor factors that might cause a fall in the value of specific shareholdings.

The £x shares are all classified as ‘available for sale’, meaning that all movements in price will impact on gains and losses recognised in Other Comprehensive Income and Expenditure. A general shift of 5% in the general price of shares (positive or negative) would thus have resulted in a £x gain or loss being recognised in the Other Comprehensive Income and Expenditure for 20X1/X2.

Foreign Exchange Risk

The Authority has no financial assets or liabilities denominated in foreign currencies and thus has no exposure to loss arising from movements in exchange rates.


52. HERITAGE ASSETS: FIVE-YEAR SUMMARY OF TRANSACTIONS155, 156, 157

20W7/W8 20W8/20W9 20W9/20X0 20X0/20X2 20X1/20X2

£000 £000 £000 £000 £000

Cost of Acquisitions of Heritage Assets

Ceramics x x x x x

Art Collection x x x x x

Total Cost of Purchases

x x x x x

Value of Heritage Assets Acquired by Donation

Ceramics x x x x x


Total Donations x x x x x

Disposals of Art Collection Assets

Carrying Value x x x x x

Proceeds x x x x x

Disposals of Ceramics

Carrying Value x x x x x

Proceeds x x x x x

Impairment Recognised in the Period

Ceramics x x x x x



156. Per paragraph 4.10.4.5 of the Code, this information need not be given for any period before 1 April 2010 where it is not practicable to do so. A statement to the effect that it is not practicable should be made.

157. This summary must show separately transactions that are reported in the Balance Sheet and those that are not. The Code sets out that this information may be presented in aggregate for groups or classes of heritage assets provided that this aggregation does not obscure significant information.


53. HERITAGE ASSETS: FURTHER INFORMATION ON THE MUSEUM’S COLLECTIONS158

Ceramics, Porcelains and Figurines

The Collection of ceramics, porcelain work and figurines includes some 2,000 pieces in the displays held by the Museum from the last 250 years demonstrating the development and the quality of ceramics produced in the area. Most of the collection was acquired in the early twentieth century from local benefactors. There are three Jacksonite Dinner services which are deemed to be the finest and most complete of their kind in the United Kingdom. In addition there is a celebrated collection of Lord Grace’s dinner service which depicts Lord Grace’s expedition up the Nile in 1896. There is also a diverse collection of figures in terracotta, porcelain and clay depicting contemporary eighteenth and nineteenth century personalities. The museum also holds a fine collection of bone china including vases in a series depicting the Greek gods deemed to be of unparalleled quality dated from 1796 to 1840.

At any time, 70% of the collection is on display. The remaining pieces are held in storage but access is permitted to scholars and others for research purposes.

Art Collection

The Collection consists of 1,200 paintings and sketches dating from over the last 200 years depicting the local area. Approximately a quarter of the collection was provided in the 1930s when a local benefactor, Lady Daisy Grace, donated her entire private collection to the Museum. This collection is housed in the Lady Grace wing of the Museum. Lady Grace’s collection included early examples of Monay, Day Gaaz and Sayzanne and other celebrated artists at the end of the nineteenth century. The art collection also contains a collection of sketches from the local artists in the early 1900s and two collections of watercolours and one of oil paintings from the estate of one of the pottery factory owners, Sir Joseph Pottersby.

The Museum occasionally makes available loan items from its celebrated collection to regional and national museums. The Museum also accepts paintings and other items on loan. At any time, 45% of the collection is on display. The remaining paintings or sketches are held in secure storage but access is permitted to scholars and other appropriate persons for academic and research purposes.

Machinery, Equipment and Other Artefacts relating to the Pottery Industry159

The collection consists of over 4,000 items of machinery, equipment and other artefacts relating to the Pottery Industry, including glazing instruments, potters’ machinery and wheels. It also includes sound recordings and amateur film recordings from the Stockpotshire Porcelain Company Owner Mr John Teecup relating to life in the potteries in the late nineteenth and early twentieth centuries.

The Authority’s Museum also holds a collection of pottery ephemera. This part of the collection was established primarily by donation from the local area; significant donations

158. Required by paragraph 4.10.4.1(a), (d) and (e) of the Code.



have been received from the Kilnshire and Teecup Potteries and from a number of local benefactors. The ephemera includes advertising brochures, sales catalogues, design drawings, etc. These exhibits are useful as a means of demonstrating the influence of the pottery industry in the local area.

At any time, approximately 50% of the items in the collection are held on display. The remaining items and equipment are held in storage but access is permitted for scholars for academic and research purposes.

Archaeology Collection

The archaeology collection principally consists of material from a collection donated by Sir Isa Matthew Diggin, the celebrated British archaeologist who lived in the area in the early twentieth century. The date range is from Ideolithic to post-medieval times (approximately AD1655). There are 20,000 plus items. Particularly good examples are produced in the British Collection from the Bronze Age to the Roman period. Examples include coins, tools and jewellery. The Museum has also collated a Mediterranean Collection donated 10 years later by Sir Isa’s brother, Mr Luke I. M. Diggin II, from the Roman period. This consists of similar artefacts and includes a particularly good collection of Roman vases. As set out the summary of significant accounting policies, the Authority does not consider that reliable cost or valuation information can be obtained for these donated items held in its archaeological collection. This is because of the diverse nature of the assets held and lack of comparable market values.160

At any time, 45% of the collection is on display. The remaining pieces are held in storage but access is permitted to scholars and others for research purposes.

Heritage Assets of Particular Importance161

As explained in Note 13, the Museum holds two paintings which the Council regards as particularly significant donations. One of the Monays is a particularly good example of his later works and is deemed to be valued at £x million. The Sayzanne is deemed to be an excellent example of his landscapes and is valued at £x million. These values have been ascertained by external valuers (Pikaso, VanGok and Co). The entire collection, as explained in note 13, is valued at £x million.

This disclosure has already mentioned the noteworthy items in the Ceramics collection but in terms of value the Lord Grace’s dinner service depicting the expedition up the Nile has been valued at £x million. The overall value of the ceramics collection is deemed to be £x million.

The collection of items of machinery and equipment and other artefacts has a particularly excellent example of a glazing machine. As one was sold in a recent auction, the Authority has been able to establish a value of £x.

The archaeology collection holds some fine examples of Roman coins and tableware and is particularly significant in monetary value. One of the Roman Vases from the Mediterranean archaeological dig is the only surviving example of its kind in the United Kingdom; as such


161. This part of the note helps to further demonstrate the requirements of paragraph 4.10.4.1(a) of the Code.


the vase is believed to be extremely valuable. However, in the Authority’s opinion, because of its rarity it is not possible to provide a reliable estimate of its value.

Preservation and Management162

The Authority’s Museum has a rolling programme of major repair and restoration of its artefacts, where required, developed from a review of the condition of the museum’s collections that was carried out in 20X0. The total cost of the restoration programme is £x. The cost of this programme has been charged to the Comprehensive Income and Expenditure Statement.

Each of the collections is managed by a curator of the Museum who reports to the Chief Executive. Regular reports are also received by the Authority’s Cultural Services Committee. The Curators manage the collection in accordance with policies that are approved by the Authority and the Museum Board of Trustees. Further information is provided in the Museum’s separate publication Museum Collections Preservation and Management which has been produced in accordance with national guidelines and is available on the Museum’s website.

The publication sets out that the assets in the collection are only disposed of when in the opinion of the trustees they no longer contribute to the interest of the general public in the area and the diversity of the collection. Acquisitions are rare and primarily made by donation. However, on rare occasions when particularly important asset is available for purchase, the Authority will undertake the purchase provided that it meets the objectives of the Museum and the Authority in terms of its collection of heritage assets.

Assets are collated, preserved and managed in accordance with the aforementioned guidelines. The register for its collections records the nature, provenance, condition and current location on each asset. The Museum has also initiated a project to computerise these records. The project is half complete and this will allow the public access to images of the assets. It is estimated that the project will be fully complete in two years’ time.

54. TRUST FUNDS163

The Authority acts a custodian trustee for two trust funds, and as one of several trustees for a further Y funds. As a custodian trustee the authority holds the property but takes no decisions on its use. In neither case do the funds represent the assets of the Authority and therefore they have not been included in the Balance Sheet.

162. Required by paragraph 4.10.4.1(b) of the Code.



Funds for which Authority acts as custodian trustee:


£000 £000 £000 £000

X Funds Community Halls


x x x x

Y Theatre x x x x

Created in 1820 support amateur dramatics societies

Total x x x x


£000 £000 £000 £000

X Funds Community Halls


x x x x

Y Theatre x x x x

Created in 1820 support amateur dramatics societies

Total x x x x

Other Funds

20X0/X1 20X1/X2

Capital Value of Fund Capital Value of Fund

£000 £000

Green Fund – purchase of library books promoting green issues

x x

Orange Fund – aid to people with learning disabilities

x x

Others x x

Total x x


SECTION B

Example Financial Statements and Notes to the Accounts for

Local Authorities 2014/15 (Alternative Presentation)

This part of the example financial statements document has also been prepared to illustrate the requirements of the Code of Practice on Local Authority Accounting in the United Kingdom 2014/15. The examples below present possible alternative presentations of a number of the financial statements and disclosures for authorities to consider (the comments included in the introduction to the example financial statements in Section A are equally applicable to these statements). These examples are not guaranteed to provide a definite interpretation of the Code’s provisions or to contain all the disclosures that individual authorities might need to make in order to give a true and fair view of their own financial position and performance (this is particularly the case as the alternative presentations are presented only for a limited number of the statements and disclosures). It is likely that alternative presentations will also be appropriate for other financial statements not presented here, provided that they meet the Code’s requirements. It is intended that future editions will build on these examples as alternative presentations become available.

This document should not be treated as a template for the preparation of the Statement of Accounts.

Movement in Reserves Statement1, 2, 3

This statement shows the movement in the year on the different reserves held by the authority, analysed into ‘usable reserves’ (ie those that can be applied to fund expenditure or reduce local taxation) and ‘unusable reserves’ (ie unrealised gains and losses and adjustment accounts that absorb the difference between the outcome of applying proper accounting

1. Presentational requirements are contained in paragraphs 3.4.2.39 to 3.4.2.41 of the Code. Theseparagraphs give authorities options to include more detail on the face of the Statement.

2. Authorities in Scotland will omit the columns for Earmarked Reserves and the Major Repairs Reserve andsubstitute a column or columns for statutory funds.

3. The MiRS example financial statement does not include entries for the Business Rate Supplement RevenueAccount. Where authorities operate a Business Rate Supplement Revenue Account, appropriate lineswill be required to record the statutory adjustments via MiRS to and from the Business Rate SupplementRevenue Account (see Module 2, section B of these Guidance Notes).


practices and the requirements of statutory arrangements for funding expenditure). The Surplus or (Deficit) on the Provision of Services line shows the true economic cost of providing the authority’s services, more details of which are shown in the Comprehensive Income and Expenditure Statement (in the example accounts below). This is different from the statutory amounts required to be charged to the General Fund Balance and the Housing Revenue Account for council tax setting and dwellings rent-setting purposes. The Net Increase/Decrease before Transfers to Earmarked Reserves line shows the statutory General Fund Balance and Housing Revenue Account Balance before any discretionary transfers to or from earmarked reserves undertaken by the council.4

Revenue ReservesCapital

Reserves

Gene

ral F

und

Bala

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Earm

arke

d Ge

nera

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d Re

serv

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Hou

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Rev

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Acc

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Earm

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d H

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Capi

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Rese

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Maj

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Acco

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Adj

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Capi

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Ac

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Fi

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ts A

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Accu

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ated

Abs

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s Ac

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ion

Fund

Adj

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ent

Acco

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Pens

ions

Res

erve

Unu

sabl

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es

Tota

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£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

Balance at 31 March 20X0 x x x x x x x x x x x x x x x x x xMovement in reserves during 20X0/X1

Surplus or deficit on the provision of services x – x – – – – x – – – – – – – – – xOther Comprehensive Income and Expenditure – – – – – – – – x – – – – – – – x xTotal Comprehensive Income and Expenditure x – x – – – – x x – – – – – – – x xAdjustments between accounting basis & funding basis under regulations (Note 7) x – x – x x x x x x x x x x x x x –Net Increase or Decrease before Transfers to Earmarked Reserves x – x – x x x x x x x x x x x x x xTransfers to/from Earmarked Reserves (Note 8) x x x x – – – – – – – – – – – – – –Increase or Decrease in 20X0/X1 x x x x x x x x x x x x x x x x x x



Revenue ReservesCapital

Reserves

Gene

ral F

und

Bala

nce

Earm

arke

d Ge

nera

l Fun

d Re

serv

es

Hou

sing

Rev

enue

Acc

ount

Earm

arke

d H

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Capi

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Rese

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Maj

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Capi

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Acco

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Rese

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Inst

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Adj

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Capi

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Fi

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Accu

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Abs

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s Ac

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ion

Fund

Adj

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ent

Acco

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Pens

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Res

erve

Unu

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serv

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Tota

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£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

Balance at 31 March 20X1 carried forward x x x x x x x x x x x x x x x x x xMovement in Reserves during 20X1/X2

Surplus or deficit on provision of services x – x – – – – x – – – – – – – – – xOther Comprehensive Income and Expenditure – – – – – – – – x – – – – – – – x xTotal Comprehensive Income and Expenditure x – x – – – – x x – – – – – – – x xAdjustments between accounting basis & funding basis under regulations (Note 7) x – x – x x x x x x x x x x x x x –Net Increase or Decrease before Transfers to Earmarked Reserves x – x – x x x x x x x x x x x x x xTransfers to/from Earmarked Reserves (Note 8) x x x x – – – – – – – – – – – – – –Increase or Decrease in 20X1/X2 x x x x x x x x x x x x x x x x x xBalance at 31 March 20X2 carried forward x x x x x x x x x x x x x x x x x x


Comprehensive Income and Expenditure Statement5 Format 1*This statement shows the accounting cost in the year of providing services in accordance with generally accepted accounting practices, rather than the amount to be funded from taxation. Authorities raise taxation to cover expenditure in accordance with regulations; this may be different from the accounting cost. The taxation position is shown in the Movement in Reserves Statement.6

20X0/X1 20X1/X2

Gross Expenditure

Gross Income

Net Expenditure

Gross Expenditure

Gross Income

Net Expenditure

£000 £000 £000 £000 £000 £000



x x xEnvironmental and regulatory services x x x


x x xChildren’s and education services x x x

x x xHighways and transport services x x x




x x xSocial care legal settlements (material item)a x x x




x x x Other operating expenditure (Note 9)

x x x

x x x Gain on disposal of authority headquarters (Note Y)a

x x x


x x x


x x x


x x x

5. Presentational requirements are contained in paragraphs 3.4.2.44 to 3.4.2.53 of the Code. These paragraphs give authorities options to include more detail on the face of the statement – this example shows only the minimum requirements.



20X0/X1 20X1/X2

Gross Expenditure

Gross Income

Net Expenditure

Gross Expenditure

Gross Income

Net Expenditure

£000 £000 £000 £000 £000 £000


x


x


x


x


x


x


x

* Following the amendments to IAS 1 Presentation of Financial Statements (Amendments to Other Comprehensive Income) in the 2013/14 Code, these alternative example financial statements now contain two formats for Other Comprehensive Income and Expenditure in the Comprehensive Income and Expenditure Statement: Format 1 where authorities do not have material items which may be reclassifiable in the Surplus or Deficit on the Provision of Services and Format 2 where authorities do have these transactions (see F9 to F14 of Module 3).




Comprehensive Income and Expenditure Statement7 Format 2* (example including the split of the CIES for items that will not be reclassifiable to the Surplus and Deficit on the Provision of Services and those that may be)This statement shows the accounting cost in the year of providing services in accordance with generally accepted accounting practices, rather than the amount to be funded from taxation. Authorities raise taxation to cover expenditure in accordance with regulations; this may be different from the accounting cost. The taxation position is shown in the Movement in Reserves Statement.8

20X0/X1 20X1/X2

Gross Expenditure

Gross Income

Net Expenditure

Gross Expenditure

Gross Income

Net Expenditure

£000 £000 £000 £000 £000 £000




x x x








x x x





x x x Gain on disposal of authority headquarters (Note Y)a

x x x


x x x


x x x

7. Presentational requirements are contained in paragraphs 3.4.2.43 to 3.4.2.53 of the Code. These paragraphs give authorities options to include more detail on the face of the statement – this example shows only the minimum requirements. An alternative presentation of the CIES can be found in the alternative presentation section of these example financial statements.



20X0/X1 20X1/X2

Gross Expenditure

Gross Income

Net Expenditure

Gross Expenditure

Gross Income

Net Expenditure

£000 £000 £000 £000 £000 £000


x x x


x


x


x


x


x

Items that will not be reclassified to the (Surplus) or Deficit on the Provision of Services


x


x

x Actuarial gains/losses on pension assets/liabilities

x

x x

Items that may be reclassified to the (Surplus) or Deficit on the Provision of Services

x Surplus or deficit on revaluation of available for sale financial assetsc

x

x x


x


x


* Following the amendments to IAS 1 Presentation of Financial Statements (Amendments to Other Comprehensive Income) in the 2013/14 Code these alternative example financial statements now contain two formats for Other Comprehensive Income and Expenditure in the Comprehensive Income and Expenditure Statement: Format 1 where authorities do not have material items which may be reclassifiable in the Surplus or Deficit on the Provision of Services and Format 2 where authorities do have these transactions (see F9 to F14 of Module 3).



c Note that IAS 1 also cites the examples of examples of exchange differences on translating foreign operations and cash flow hedges as gains and losses; these have not been included as these are not considered likely transactions for local authorities where they are relevant separate line items would need to be added to the grouping of the items that may be reclassified to the Surplus of Deficit on the Provision of Services.

Balance Sheet9

The Balance Sheet shows the value as at the Balance Sheet date of the assets and liabilities recognised by the authority. The net assets of the authority (assets less liabilities) are matched by the reserves held by the authority. Reserves are reported in two categories. The first category of reserves is usable reserves, ie those reserves that the authority may use to provide services, subject to the need to maintain a prudent level of reserves and any statutory limitations on their use (for example the Capital Receipts Reserve that may only be used to fund capital expenditure or repay debt). The second category of reserves is those that the authority is not able to use to provide services. This category of reserves includes reserves that hold unrealised gains and losses (for example the Revaluation Reserve), where amounts would only become available to provide services if the assets are sold; and reserves that hold timing differences shown in the Movement in Reserves Statement line ‘Adjustments between accounting basis and funding basis under regulations’.10

9. Presentational requirements are contained in paragraphs 3.4.2.55 to 3.4.2.57 of the Code.



1 April 20X0a

31 March 20X1 Notes

31 March 20X2

£000 £000 £000

Property, Plant and Equipment (PPE)

x x Operational Assets (PPE) x

x x Council Dwellings x

x x Other Land and Buildings x

x x Vehicles, Plant, Furniture and Equipment x

x x Infrastructure Assets x

x x Community Assets x

x x Total Operational PPE x

x x Non-operational Assets (PPE)

x x Surplus Assets x

x x Assets under construction x

x x Total Non-operational PPE x

x x Total Property, Plant and Equipment 12 x

x x Heritage Assets 13 x

x x Investment Property (including held for sale where the authority has opted to disclose this as a separate category)

14 x

x x Intangible Assets 15 x


x x Long-term Investments 16 x

x x Long-term Debtors 16 x

x x Long-term Assets x

x x Current Held for Sale Investment Propertyc 14 x

x x Current Intangible Assetsc 15 x

x x Short-term Investments 16 x


x x Inventories 17 x

x x Short-term Debtors 19 x

x x Cash and Cash Equivalents 20 x

x x Current Assets x

x x Cash and Cash Equivalentsb 20 x

x x Short-term Borrowing 16 x


1 April 20X0a

31 March 20X1 Notes

31 March 20X2

£000 £000 £000

x x Short-term Creditors 22 x






x x Current Liabilities x

x x Long-term Creditors 16 x



x x Long-term Borrowing 16 x

x x Other Long-term Liabilities 16 x




x x Long-term Liabilities x

x x Net Assets x

Usable Reserves 24

x x General Fund x

x x Earmarked General Fund Reserve x

x x Housing Revenue Account x

x x Earmarked Housing Revenue Account x

x x Revenue Statutory Fund x

x x Capital Receipts Reserve x

x x Capital Grants Unapplied Account x

x x Other Balances and Reserves x

x x Total Usable Reserves x

Unusable Reserves 25

x x Revaluation Reserve

x xAvailable for Sale Financial Instruments Reserve

x

x x Capital Adjustment Account x

x x Financial Instruments Adjustment Account x


1 April 20X0a

31 March 20X1 Notes

31 March 20X2

£000 £000 £000

x x Deferred Capital Receipts Reserve x

x x Pensions Reserve x

x x

Collection Fund Adjustment

Account

x

x x Unequal Pay back Pay Account x

x x Accumulated Absences Account x

x x Total Usable Reserves x

x x Total Reserves x

a Opening Balance Sheet for comparative year only required where there have been prior period adjustments. This Opening Balance Sheet will be covered by the requirements of paragraph 3.4.2.60 of the Code to disclose further sub-classifications of the line items. Many of the supporting notes already require this information in comparative figures for reconciliations of opening and closing balances (eg paragraph 4.1.4.3 1) e) of the Code in relation to Property, Plant and Equipment). However, where this is not the case, notes supporting the Balance Sheet may require an additional comparative column in order to disclose the breakdown of balances at 1 April of the comparative year.

b This line has the description Cash and Cash Equivalents as it represents a net deficit on cash; it would have the description Bank Overdrafts if it contained the gross deficit of cash overdrawn on bank accounts for which there were no offsetting arrangements with the bank.

c These lines are used when the assets in question meet the definition of a current asset – see section G of this module. If any of these items meet the definition of a current asset, they should be separately identified in the relevant note.

d These lines are used when the liabilities in question meet the definition of a current liability – see section G of this module. If any of these items meet the definition of a current liability, they should be separately identified in the relevant note.


HERITAGE ASSETS11

Reconciliation of the Carrying Value of Heritage Assets Held by the Authority

Monuments in Park

Art Collection

Historic Buildings

Total Assets

£000 £000 £000 £000

Cost or Valuation


Additions x x x x

Disposals x x x x

Revaluation increases/(decreases)recognised in the Revaluation Reserve

x x x x

Revaluation increases/(decreases)recognised in Surplus or Deficit on the Provision of Services

x x x x


Depreciation and Impairment


Depreciation x x x x

Disposals x x x x

Impairment losses/(reversals) recognised in the Revaluation Reserve

x x x x


x x x x


Net Book Value

At 31 March 20X2 x x x x


11. This is an alternative presentation for paragraph 4.10.4.2(i) of the Code. Full disclosure requirements for Heritage Assets are included in paragraphs 4.10.4.1 to 4.10.4.9 of the Code.


Monuments in Park

Art Collection

Historic Buildings

Total Assets

£000 £000 £000 £000

Cost or Valuation


Additions x x x x

Disposals x x x x

Revaluation increases/(decreases)recognised in the Revaluation Reserve

x x x x

Revaluation increases/(decreases)recognised in Surplus or Deficit on the Provision of Services

x x x x


Depreciation and Impairment


Depreciation x x x x

Disposals x x x x

Impairment losses/(reversals) recognised in the Revaluation Reserve

x x x x


x x x x


Net Book Value




SHORT-TERM DEBTORS12 13,14

1 April 20X0

31 March 20X1

31 March 20X2

£000 £000 £000

x x Central Government Bodies x

(x) (x) Less Impairment Allowance (x)

x x Central Government Bodies x

x x Other Local Authorities x


x x Other Local Authorities x

x x NHS Bodies x


x x NHS Bodies x

x x Public corporations and trading funds x


x x Public corporations and trading funds x

x x Other entities and individuals13 x

(x) (x) Impairment (x)

x x Other entities and individuals14 x

x x Total x

The above presentation demonstrates that each class of debtor is required to be reduced to its recoverable amount, ie NET of impairments (or impairment allowance). The allowance account is not a ‘provision’. This is the case whichever presentation is used (as set out above or per Note 19 in the main Example Financial Statements).


13. Will include balances such as rent arrears, council tax and trade debtors. Authorities might consider separately disclosing items included within this category.

14. Per footnote 12.


SECTION C

How to Tell the Story: Local Authority Financial

Statements (Second Edition)

INTRODUCTIONLocal authorities have more than met the challenge of moving to IFRS. However, the recent consultation on simplifying and streamlining the presentation of local authority financial statements has indicated that they consider that the main messages of local authority financial statements might be obscured by the detail. The respondents indicated that the story of local authority performance measured in terms of General Fund or HRA Balances might also be difficult to present.

But there are also opportunities to simplify presentation and make the messages clearer in a number of areas:

� Comparisons with budgets

� General Fund and HRA performance

� Reserves position; and

� Cash flows.

This briefing note is intended to help CFOs and other senior staff present the financial statements to members and other key stakeholders by explaining how the formats can be used to convey key information in these areas.

COMPARISON WITH BUDGETSFor members, probably the most important issue will be whether the authority has a surplus or deficit on General Fund or HRA balances against its budget for the year.

This was confirmed by the responses to the CIPFA/LASAAC consultation on simplifying and streamlining the presentation of local authority financial statements.

Because the financial statements follow accounting standards rather than local government legislation, this hasn’t been easy to identify in the past. However, the Movement in Reserves


Statement shown below provides users of the financial statements with more information to make that analysis (for example, by comparison with their budget reports).

In the Movement in Reserves Statement, the Surplus or Deficit on Provision of Services and Other Comprehensive Income and Expenditure are taken from the Comprehensive Income and Expenditure Statement (see example below). The Movement in Reserves Statement shows:

� how the authority has generated and expended resources in the year

� how the resourcing position is adjusted under statutory rules to show the funds available to be spent at year end; and

� the extent to which available funds have been earmarked for specific purposes.

Movement in Reserves Statement during 20X0/X1 £’000

Balance at 31 March 20X0 carried forward 19,698

Surplus or (deficit) on the provision of services (2,783)

Other Comprehensive Income and Expenditure –

Total Comprehensive Income and Expenditure (2,783)

Adjustments between accounting basis & funding basis under regulations (Note 7) 2,635

Net Increase or Decrease before Transfers to Earmarked Reserves (148)

Transfers to/from Earmarked Reserves (Note 8) 459

Increase or Decrease in 20X0/X1 311

Balance at 31 March 20X1 carried forward 20,009

General Fund share of the surplus or deficit. The HRA is in a separate column

Statutory adjustments such as the replacement of depreciation with MRP or pension liabilities with contributions etc.

How do these last three highlighted figures compare to the budget?

Deficit for the year

Adjusted by transfers from earmarked reserves

Giving an increase in the General Fund balance over the year

Members will have previously approved the transfers to or from earmarked reserves shown in the Movement in Reserves Statement (MiRS). The increase or decrease on the General Fund balance which is shown in this Statement would also normally be reported to members as part of the outturn report, although it might have been described as the surplus or deficit for the year. For housing authorities, there is a separate column in the Movement in Reserves Statement showing the equivalent HRA figures; other columns show earmarked reserves etc.

A loss shown in the CIES – especially if it’s regularly a loss – is an indication that the costs of providing this year’s services have not been covered by income and will need to be funded by taxpayers in future years.1

An overall increase in usable reserves despite a loss being shown in the CIES will arise where statutory provisions allow a different charge to revenue from the authority expenditure incurred (eg replacement of depreciation by Minimum Revenue Provision (MRP)). The adjustment to usable reserves is balanced by a movement in unusable reserves.

Unusable reserves such as the Capital Adjustment Account and the Pensions Reserve will need to be funded in the future, even if it is over a long period, so increases in these balances show an increasing burden on future taxpayers.

1. This does not affect local authority annual statutory budgetary duties.


GENERAL FUND AND HRA PERFORMANCEThe Comprehensive and Expenditure Statement (CIES) expands the part of the MiRS that shows how resources have been generated and expended. The key lines that summarise performance are highlighted below:

Total income and expenditure of the authority for the year

Operational costs of providing the services of the authority

Expenditure of continuing operations, analysed by service, this line recociles with the segmental reporting note

Gross Gross Net Expenditure Income Expenditure £000 £000 £000

Central services to the public 4,970 (3,765) 1,205

Cultural environmental regulatory and planning services 13,624 (11,370) 2,254

Children’s and education services 63,401 (20,496) 42,905

Highways and transport services 23,988 (7,930) 16,058

Local authority housing (HRA) 25,787 (26,901) (1,114)

Other housing services 4,250 (3,857) 393

Adult social care 16,872 (5,518) 11,354

Social care legal settlements (material item)a 2,204 – 2,204

Corporate and democratic core 447 (65) 382

Non distributed costs 604 – 604

Cost of Services 155,967 (79,902) 76,065

Other operating expenditure (Note 9) 2,218 – 2,218

Financing and investment income and expenditure (Note 10) 11,340 (2,359) 8,981

Taxation and non-specific grant income and expenditure (Note 11) – (84,876) (84,876)

(Surplus) or Deficit on Provision of Services 2,388

(Surplus) or deficit on revaluation of Property, Plant and Equipment assets (36,597)

(Surplus) or deficit on revaluation of available for sale financial assets (101)

Remeasurements of the net defined benefit liability (asset) (8,444)

Other Comprehensive Income and Expenditure (45,142)

Total Comprehensive Income and Expenditure (42,754)

[The CIES above is based on the assumption that all operations are continuing]

Comprehensive Income and Expenditure Statement 20X0/X1


The Comprehensive Income Expenditure Statement is split into two parts.

The first part reflects the full economic cost of providing the service of the authority with the results summarised at the Surplus or Deficit on the Provision of Services line, highlighted in green on the preceding page. It represents the operating costs providing the services of the authority in the year. In the private sector this would be equivalent to the profit or loss of a company.2

The second part, other comprehensive income and expenditure shows the gains or losses in the measurement of the assets and liabilities of the authority. These gains or losses arise as a result of changes in market valuations, interest rates or changes in measurement assumptions in relation to pensions assets and liabilities.

Whilst the financial statements under the Code don’t provide a direct comparison with the budget, one of the notes to the financial statements – on segmental reporting – can provide a bridge between budgets and the financial statements. Whether it does this in practice depends on the decisions authorities take about what goes in this note.

Segmental Reporting Note

As mentioned above, a comparison with budgets is one of the key items members will be looking for. As the financial statements contain figures members won’t be used to seeing, it may be helpful to start explaining the accounts by starting with the Segmental Reporting note.

The note is based on internal management reporting structures and has to include at least 75% of service expenditure. The example below starts off by showing outturn information previously reported to members, and includes a line for support service recharges. However, if your authority reports the costs of support services separately, they could appear as a separate segment.

It is useful to point out here that the CIES presents segmental information in accordance with the service expenditure analysis defined by the Service Reporting Code of Practice. The segmental reporting note is not defined by this analysis.

2. Due to the statutory accounting arrangements this line does not represent the movements and therefore performance for the year against general fund or HRA balances.


Note that headings are based on the authority’s directorates, not the service classification in the Service Reporting Code of Practice

Outturn figures previously reported to members

This note is then reconciled to the Comprehensive Income and Expenditure Statement. The example below also doesn’t include 100% of the service expenditure – so the missing services appear in the reconciliation. Including all the service expenditure in the note is likely to be more beneficial for members, and simplifies the reconciliation. Other reconciling items are likely to be common year-end adjustments such as for depreciation, pension adjustments etc. provided that these aren’t already included in monitoring reports.

The cost of services forms part of the Surplus or Deficit on the Provision of Services.

Capital grants are generally credited to taxation and non-specific grant income and expenditure line as they are received. This means that service lines won’t include capital grant income; and also that the Surplus or Deficit might be more ‘lumpy’ because of these changes.

[Directorate] Income and Expenditure 2010/2011 Environment Education and Health and Community and Planning and Learning Social Care Living Leisure Total £000 £000 £000 £000 £000

Fees, charges & other service income (1,481) (5,012) (2,452) (30,417) (39,362)

Government grants (19,015) (506) (5,238) (12,955) (37,714)

Total Income (20,496) (5,518) (7,690) (43,372) (77,076)

Employee expenses 40,252 11,235 8,652 30,565 90,704

Other service expenses 10,369 2,044 9,948 9,894 32,255

Support service recharges 4,326 1,273 2,031 6,232 13,862

Total Expenditure 54,947 14,552 20,631 46,691 136,821

Net Expenditure 34,451 9,034 12,941 3,319 59,745

20X0/20X1 £’000

Net expenditure in the [Directorate] Analysis 59,745

Net Expenditure of services and support services not included in the analysis. 2,015

Amounts included in the Comprehensive Income and Expenditure Statement not reported to management in the Analysis 37,055

Amounts included in the Analysis not included in the Comprehensive Income and Expenditure Statement (22,750)

Cost of services in the Comprehensive Income and Expenditure Statement 76,065

Reconciles to the cost of services figure in the CIES on page 5


BALANCE SHEETThe Balance Sheet in local authorities is very similar to other public sector or private sector balance sheets. The balance sheet presents an authority’s financial position, i.e. its net resources at the financial year end. The balance sheet is composed of two main balancing parts i.e. its net assets and its total reserves. The net assets part shows the assets of the authority would have control of after settling all its liabilities. The balance of these assets and liabilities is then shown as being attributable to the various reserves of the authority.

31 March 20X1 Balance Sheet Notes £000

Property, Plant and Equipment 12 648,924

Heritage Assets 13 3,379

Investment Property 14 4,020

Intangible Assets 15 709

Long-term Investments 16 948

Long-term Debtors 16 3,798

Long-term Assets 661,778

Short-term Investments 16 24,060

Assets Held for Sale 21 1,409

Inventories 17 1,769

Short-term Debtors 19 15,351

Current Assets 42,589

Bank overdraft (13,767)

Short-term Borrowing 16 (9,500)

Short-term Creditors 22 (21,960)

Current Liabilities 45,227

Provisionsd 23 (4,297)

Long-term Borrowing 16 (89,733)

Other Long-term Liabilities 16 (155,327)

Long-term Liabilities 249,357

Net Assets 409,783

For local authorities balance sheet presentation is split between the usable reserves and unusable reserves. Usable reserves are those which the authority can utilise to support the future service provision. Unusable reserves cannot be used to support services and include gains and losses where amounts can only become available to support services if the assets are sold. These gains and losses are referred to as unrealised.

This will typically be the largest asset balance in a local athority balance sheet and includes the authority’s property asset portfolio

Long term assets ie those expected to provide benefits to the authority beyond 12 months

Current assets ie those anticipated to be consumed in 12 months – the normal operating cycle for the authority

Reconciles to the cash and cash equivalents balance in the cash flow statement

Current liabilities ie those liabilities anticipated to be settled within 12 months

Long-term liabilities ie these liabilities that are anticipated to be settled beyond 12 months

Total assets less total liabilities


RESERVESReserves – including the General Fund and (where relevant) the Housing Revenue Account – are an indication of the resources available to an authority to deliver services in the future. The key messages that members will be looking for in terms of reserves – especially the General Fund and the HRA – are how the balances have changed over the year, whether the balances are still adequate, and what the balances mean in terms of future budgets and services.

The minimum requirement in presenting resources is to include only two lines – usable reserves (such as General Fund and earmarked reserves) and unusable reserves (such as the Revaluation Reserve and the Capital Adjustment Account).

If there are some reserves you want to show on the balance sheet, that’s fine, as long as these totals are shown.Whilst the Balance Sheet aims to show those reserves over

which members have control, don’t forget that some of the unusable reserves will become a charge against the revenue account – or usable reserves – over time. And in some cases, such as the Unequal Pay Back Account, this might be within a year or two.

31 March 20X1 Notes £’000

Usable reserves 23 27,068

Unusable Reserves 24 382,715

409,783

Information on the level of reserves can be found in the balance sheet and related notes, and in the Movement in Reserves Statement (and related notes). This latter statement will be more useful in explaining the changes that have taken place during the year, including contributions to and from earmarked reserves.

As indicated on the preceding page not all reserves can be used to deliver services, and the Code reflects this by reporting reserves in two groups – ‘usable’ and ‘unusable’ reserves. Usable reserves such as the General Fund and earmarked reserves are those where members will be involved in deciding on the levels maintained, and their use. Unusable reserves such as the Revaluation Reserve and the Capital Adjustment Account aren’t subject to such member influence.


CASH FLOWSThe final statement required by the Code is the Cash Flow Statement. The cash flow statement shows changes in cash flows of the authority during the financial year. It shows net cash flows split into three activities, ie operating, investing and financing. The cash flow statement shows the resulting movement in cash flows, ie its cash and cash equivalents. Cash and cash equivalents include short-term investments that are readily convertible and which are subject to only insignificant risk of changes in value.

The Code sets out the minimum requirements for the financial statements of the authority, but authorities are free to include more detail if they think it will help them to explain the accounts to members and other stakeholders.

Surplus or Deficit taken from the Comprehensive Income and Expenditure Statement

Cash and cash equivalents figure in the Balance Sheet

3 groups of transactions: � Operating � Investing � Financing

20X0/X1 £000

Net (surplus) or deficit on the provision of services 2,388

Adjustments to net surplus or deficit on the provision of services for non-cash movements (24,067)

Adjustments for items included in the net surplus or deficit on the provision of services that are investing and financing activities 11,523

Net cash flows from Operating Activities (Note 26) (10,156)

Investing Activities (Note 27) (24,585)

Financing Activities (Note 28) 35,140

Net increase or decrease in cash and cash equivalents 399

Cash and cash equivalents at the beginning of the reporting period (14,166)

Cash and cash equivalents at the end of the reporting period (Note 19) (13,767)


REMINDERS AND QUESTIONS RAISED ON THE IFRS-BASED CODE

IFRS – what is it?International Financial Reporting Standards (IFRSs) are a suite of accounting standards used across the world. IFRS is the international equivalent of the Financial Reporting Standards (FRSs) used until now in the UK.

IFRS is intended for the private sector – why are we using it?IFRS has been developed for the private sector, but the impact of the vast majority of transactions is the same whatever sector you are in. Where there are specific public sector reasons to diverge from IFRS, CIPFA/LASAAC (and the rest of the public sector) is permitted to refer to other Generally Accepted Accounting Practices (GAAP) including IPSAS and UK GAAP.

IPSAS?International Public Sector Accounting Standards - these are accounting standards developed specifically for the public sector by the International Public Sector Accounting Standards Board (IPSASB). The ‘rules of the road’ followed by the IPSASB when developing IFRS-based standards mean that the requirements of IPSAS will be the same as those under IFRS, except where there is a pressing public sector reason to adopt a different treatment. This makes them and other GAAP the natural first port of call for CIPFA/LASAAC when IFRS isn’t appropriate, although other GAAP is used in the Code for example for heritage assets. There are also some IPSASs that deal with exclusively public sector issues, and for which there is no IFRS equivalent – such as taxation.

So why use IFRS rather than IPSAS?When the Treasury took the decision to follow IFRS, IPSASs were not as up to date as IFRS and were still under development in key areas. That’s now changed and governments around the world are increasingly adopting IPSAS directly.

The pension deficit is meaningless – why do we have to show it?The deficit doesn’t have to be funded from this year’s budget, but it’s still a true cost – it represents the amount that will need to be found from future budgets to pay for pension entitlements already incurred in delivering services. So it’s a real call on future funding. Not showing this would hide the liability that the authority has incurred.

This also applies to other reserves. Like the Pension Reserve, the Capital Adjustment Account, the Unequal Pay Back Pay Account and similar reserves all do one thing: they hold expenditure that the authority has incurred but not yet financed. Think of them as being a bit like a credit card balance – these amounts will have to be funded in future, either from taxation or from usable reserves.

Concerns have been expressed that all these reserves make the Balance Sheet incomprehensible. But all that needs to be shown on the Balance Sheet itself are ‘Usable Reserves’ and ‘Unusable Reserves’ – the details can all go in a note. This will help to declutter the Balance Sheet.


The financial statements do not clearly demonstrate traditional measures of local authority performance, ie General Fund and HRA Balances!The IFRS-based Code sets out that local authority financial statements are intended to be used for assessing the stewardship of local authority resources and for making economic decisions. Thus the information is intended for two purposes. The statements present information on the real economic cost of providing services in the year. However, this publication also sets out that the statements show the movement in General Fund and HRA Balances. CIPFA and CIPFA/LASAAC are, however, reviewing options for making this clearer.

The accounts are too long!Yes, the accounts can be long, but local authorities have a complex story to tell. But notes only need to be produced if they are material – leaving out notes that aren’t material or required by legislation is a good start. CIPFA/LASAAC as standard setter is continuously challenging the need to introduce disclosures and reporting requirements for local government.

CIPFA/LASAAC also consulted in the summer of 2013 on simplifying and streamlining the presentation of local authority financial statements. It is reviewing the responses to the consultation and as a second stage of the post implementation review is reviewing the financial statements for relevance to local authority circumstances and to ensure they reflect local authority financial position and performance including those measures important to local authority performance.

CIPFA and CIPFA/LASAAC also anticipate holding roundtables on the financial statements to support the review. In the interim the following article highlights areas local authorities may wish to consider to cut clutter from the financial statements.


CLEAR OUT THE CLUTTER

By Alison Scott

Public Finance – 7 April 2014

We need more clarity and brevity in financial statements if they are to meet the needs of users. But too often public bodies play safe and fail to consider the ‘materiality’ of the information included.

The public sector is well advanced in producing high-quality, audited, accrual-based financial statements. However, an important question remains – is the information they contain being used as intended by the standard setters, to inform decision making and accountability?

In local government, the need to produce financial statements that address both accounting and legislative frameworks leads to complexity. Some items have to be accounted for in ways that do not reflect how the authority manages its budget. Timing differences in recognising expenditure and a service analysis that reflects national accounts requirements rather than how an authority is organised are just two examples of this. Decision makers often struggle to understand their own financial statements, and the valuable information they contain can be overlooked when policies and strategies are being considered.

Both CIPFA/LASAAC and the Treasury are aware of these problems and are reviewing how to simplify financial accounts across the public sector, but any changes will take time. However, there is much that individual organisations can do to improve their financial statements.

CIPFA published Financial Statements: a good practice guide for local authorities in late 2013. This looks at how the presentation can be improved and clutter cut from the accounts.

Too often, organisations play safe by including every disclosure required by standards, in case an omission is questioned. And too often, auditors question the omission of non-material disclosures, encouraging this behaviour.

If financial statements are to reduce in size, everyone involved needs to take materiality seriously. So how can materiality to the reader of the accounts be used to drive improvements in clarity and brevity?

In considering materiality, a number of key factors can be found in the definition:

� First, an item is not material if omitting or misstating it would not influence the decisions that users might make. As the Accounting Code notes, materiality is an aspect of relevance so omitting credit risk information that showed an authority had a significant proportion of its investments in high-risk institutions could influence the decision of a lender on whether to lend, or at what rate. Conversely, omitting credit risk information where a debt-free authority had all its investments in government-backed investments is less likely to be material, at least from a lender’s perspective.

� Second, materiality does not just depend on the magnitude of an item; its nature is also relevant. A small investment in a high-risk institution might not be material when compared with the total value of investments; but it might be material by nature if the


authority had already suffered a default by that institution, as users may question the authority’s investment strategy, and make different decisions.

� Third, the individual context needs to be considered. An item may not be material by magnitude, and its nature may be unremarkable, but if it is the difference between an authority showing a surplus or a deficit on its General Fund for the year, then it may be. Users may assess stewardship based on whether the authority’s net expenditure was within budget; so small items that resulted in the authority overspending its budget might be material for those users.

� Finally, the information that should be disclosed needs to be considered. Even if an item is material, additional information about it may not be. We should not only ask ‘Is this item material?’ but also ‘Is this piece of information material?’ The second question may produce a different answer to the first. An item may be material, but the full accompanying information may not. Or information may not relate to a particular item, but be material.

At CIPFA, we are looking at the scope to be more radical in presenting accounts to better meet the needs of primary users. By focusing on materiality, public sector organisations can remove a great deal of clutter from their accounts relatively quickly. While some decisions can only be made in the context of final draft accounts, most of the work on cutting clutter can be done in advance. This should also facilitate the senior level input required. But, the bottom line is, there already is scope to make your 2013/14 accounts3 shorter and better focused if you want to take up that challenge now.

3. (or future accounts).

module 3 the financial statements - chartered … of resources. the implications of these objectives...

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