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Audit Committee28 June 2011

Financial Accounts 2010-11

Claire Cook -Assistant Finance Director

andJoanne Watts – Head of Finance Accountancy Services

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Overview

• Format of Accounts

• Key changes for 2010-11

• Background to IFRS and key adjustments

• Walk through the key financial statements

• Segmental Reporting

• Next steps

• Questions

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Format of Accounts• Explanatory Foreword (page 4)

• Four primary statements:– Comprehensive Income & Expenditure account (page 20)

– Balance sheet (page 21)

– Movement in Reserves Statement (page 22)

– Cash flow Statement (page 23)

• Statement of Accounting Policies (page 24)

• Notes to the accounts (page 39)

• Pensions Accounts (page 127)

– Local Government Pension Fund Accounts – Fire-fighter's Pension Fund Accounts

• Glossary of Terms (page 160)

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Key changes for 2010-11

• Financial year 2010/11 is first year actual IFRS based accounts produced

• Note 1 to the accounts provides details of the adjustments involved in the restatement exercise

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Key changes for 2010-11

• Required:– Restatement of 2009/10 financials for comparative

purposes– Review & revision of accounting policies to ensure full

compliance with IFRS– New formats for key financial statements– Presentation of 3rd balance sheet (this year only)

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What is IFRS and why change?• Consistent set of standards for financial

reporting

• Governs approach to accounting across the public & private sector

• Allows comparability of accounts at global level

• One set of accounting rules

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Overview of Main Changes from UK GAAP to IFRS

Significant IFRS changes Substantially the same

Financial Statements

Greater flexibility – new statements & amended layouts

New formats consist with those used in the SORP

Salaries & Pensions

Compensated Absences: Untaken holiday pay and similar items accrued for at year end

Everything else

Govt. Grants & Contributions

Capital grants recognised immediately (unless unmet conditions) rather than deferred and matched to expenditure

Same for capital grants if there are unmet conditions

Property, Plant & Equipment (Fixed Assets)

Component accounting, new class of ‘assets held for sale’ and impairments taken initially to Revaluation Reserve rather than CI&E

Everything else

Leases Removal of 90% test, separate leases of land & buildings and need to assess whether other arrangements contain lease arrangements

Everything else – concept of finance and operating leases unchanged

Cash & Cash Equivalents

Inclusion of investments held to meet short term liabilities and bank overdrafts

Everything else

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Walkthrough: Things to consider in reviewing financial statements

• Comparison with previous year – significant movements up or down?

• Are you happy with the reasons for those movements? – should be set out in the notes

• Are the results and changes from previous year in line with your understanding with events in year?

• Do figures seem reasonable including those that are zeros?

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Walkthrough: Comprehensive Income and Expenditure statement (CI&E)

• CI&E Statement format covers the equivalent of• the SORP’s Income & Expenditure Account; and • the SORP’s STRGL

• Details:-• Cost of Services: Gross Income and Expenditure costs

incurred • Surplus or deficit on Provision of Services • Other Comprehensive Income and Expenditure

• Sets out how the costs are financed (see Note 11 – page 72)

• Government grants• Income from taxpayers

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Walkthrough: CI&E 2010/11 Page 20

2010/11

NoteGross

ExpenditureGross

IncomeNet

Expenditure

£000s £000s £000s

Cost of Services 1,948,426 (1,377,660) 570,766

Other Operating expenditure 9 5,092 (13,812) (8,720)

Financing and Investment Income & Expenditure

10 192,459 (141,263) 51,196

Taxation and Non-Specific Grant Income

11 - (815,787) (815,787)

(Surplus) or Deficit on Provision of Services (A)

2,145,977 (2,348,522) (202,545)

Surplus or Deficit on revaluation of Property, Plant and Equipment

23 (8,630)

Actuarial gains / loses on pension assets / liabilities

23 (292,487)

Other Comprehensive Income & Expenditure (B)

(301,117)

Total Comprehensive Income & Expenditure (A+B)

(503,662)

Surplus for 2010/11

Financing of services from tax and grants

Note 28 Segmental Reporting provides a

bridge to budget

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Walkthrough: Balance sheet

• Shows the value as at 31st March 2011 of the assets and liabilities recognised by the Council

• Provides details of: -

– Long term Assets– Current Assets – Long term Liabilities– Current Liabilities

• Net Assets matched by the reserves held (£1,824.560 m) : -– Usable reserves, – Unusable reserves

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Walkthrough: Balance sheet extract Page 21

31 March 2011

Note £000s £000s

Long Term Assets

2,980,662

Current Assets 176,188

Current Liabilities

(223,472)

Long Term Liabilities

(1,108,818)

Net Assets 1,824,560

Usable Reserves 23 201,534

Unusable Reserves

24 1,623,026

Total Reserves 1,824,560

• Provides details of: -

– Long term Assets– Current Assets– Long term Liabilities– Current Liabilities

• Net Assets (£1,824.560 m) are matched by the reserves held by the Council : -

– Usable reserves (see Note 23 – page 86)

– Unusable reserves (see Note 24 – page 87)

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Walkthrough: Movement in Reserves Statement Page 22

Links to

CI&E

General Fund

Total Reserves

£000s £000s

Balance at 31 March 2010 carried forward

32,140 1,320,894

Movement in reserves during 2010/11

Surplus or (deficit) on the provision of services

202,545 202,545

Other Comprehensive Income and Expenditure

301,117 301,117

Total Comprehensive Income and Expenditure

503,662 503,662

Adjustments between accounting basis & funding basis under regulations

(498,488) -

Net Increase / Decrease before Transfers to Earmarked Reserves

5,170 503,662

Transfer to / from Earmarked Reserves

(19,344) -

Increase / Decrease in 2010/11 (14,170) 503,663

Balance at 31 March 2011 carried forward

17,973 1,824,556

Note 7

Note 8

• Important consideration is whether Council has a surplus of deficit compared to its budget for the year

– Council achieved a surplus– Other CI&E is

predominately driven from actuarial position on pensions

• Adjusts for differences between Accounting Basis and Funding Basis under

Regulation (see Note 7 page 63).

• Transfers to / from Earmarked Reserves (see Note 8 page 67).

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Walkthrough: Cash flow statement Page 24

2010/11

Note £000s £000s

Net surplus or (deficit) on the provision of services

202,545

Adjustments to net surplus or deficit on the provision of services for non cash movements

(39,587)

Adjustments for items included in the net surplus or deficit on the provision of services that are investing and financing activities

(98,889)

Net cash flows from Operating Activities 25 64,069

Investing Activities 26 (46,894)

Financing Activities 27 (7,323)

Net increase or decrease in cash and cash equivalents

9,852

Cash and cash equivalents at the beginning of the reporting period

16,126

Cash and cash equivalents at the end of the reporting period

19 25,978

• Details changes in cash & cash equivalents during the reporting period.

(see Note 19 page 82)

• Shows how the Council generates and uses cash by classifying cash flows as:

– Operating; – Investing; and– Financing activities.

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Walkthrough: Cash flow statement

– The amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of the Council are funded by way of taxation and grant income or from the recipients of services provided by the Council. (£64,069K) (see Note 25 page 91)

– Investing activities represent the extent to which cash outflows have been made for resources which are intended to contribute to the Council’s future service delivery. (£46,894K) (see Note 26 page 91)

– Cash flows arising from financing activities are useful in predicting claims on future cash flows by providers of capital (i.e. borrowing) to the Council. (£7,323K) (see Note 27 page 92)

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• Based on internal management structures

• Prepared on a different basis from the financial statements. – No charges are made in relation to capital expenditure – Retirement benefits are only reflected at the end of

the year– Some centrally budgets not charged to services– Various adjustments are not reflected (e.g.

contributions to/ from reserves)

• Reconciles the management accounts (monitor) to the financial accounts (CI&ES)

Segmental Reporting (Note 28) Page 92

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• This extract shows the reconciliation to the CI&ES, where the analysis of income and expenditure by service is that specified by the Best Value Accounting Code of Practice (BVACOP)

• Other reconciling items are – Depreciation, amortisation and

impairment (capital charges)– Other service expenses – Net Pension Costs

Segmental Reporting Extract (Note 28) Page 92

2010/11

£000s

Net Expenditure in the Segmental Analysis 841,247

 

Amounts included in the Segmental analysis and included below the Net Cost of Services on the Comprehensive Income & Expenditure Statement

(31,012)

Amounts included in the Segmental analysis and not included in the Comprehensive Income & Expenditure Statement

(24,594)

Amounts in the Comprehensive Income & Expenditure Statement not included in the segmental analysis

(214,875)

 

Cost of Services in Comprehensive Income & Expenditure Account

570,766

Per CI&ES page 20

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Next steps30th June Audit Committee Meeting: Review of

Statement of Accounts

July - Sept Audit of Accounts

Mid Sept Consider Audit Commission Annual Governance Report and details of any material mis-statements

End Sept Audit Opinion published

Audited Statement of Accounts published

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Questions?