HERTFORDSHIRE COUNTY COUNCIL

AUDIT COMMITTEE

THURSDAY 29SEPTEMBER2011 AT 10.00 AM

FINAL ANNUAL STATEMENT OF ACCOUNTS 2010-11

Report of the Director Resources and Performance

[Author: Claire Cook, Assistant Director- Finance

Tel: 01992 555737

Alistair Cullen, Finance Manager – Financial Accounts & Co-ordination]

Executive Member: David Lloyd (Resources and Economic Wellbeing)

  1. Purpose of Report

To provide Members with an outline of the key changes to the Statement of Accounts.

2.Summary

2.1A number of changes to the accounts have been required following the audit review of the closure of the accounts. These do not result in any movement in the general fund balance. The changes result from:

  • Work undertaken on the review of fully depreciated assets by the finance team, which was signalled at the June meeting of the committee;
  • Adjustments required in order to comply with the revisions to the Code of Accounting Practice particularly in relation to the Firefighters’ Injury Compensation Scheme;
  • Other adjustments required following audit testing.

2.2This report summaries these adjustments and sets out more detailed information on key changes.

3.Background

3.1The draft Statement of Accounts which were subject to audit and final approval were presented to the Audit Committee on 30 June 2011.

3.2Following the audit review and further work by the Councila number of changes have been made to the statements of accounts. The key areas of change and the impact on the statement of accounts are set out in this report.

4.Changes regarding fully depreciated assets

4.1Adjustments were made to a range of assets found to still be on the balance sheet but which had been fully depreciated and so had a net book value of zero. This issue arose following the work on restating accounts under International Financial Reporting Standards (IFRS) and was raised with the Audit Committee in June 2011.

4.2The aim of the exercise was to enable a complete reconciliation of the balance sheet (held on SAP) with the asset register (held on TechForge). This exerciseinvolved undertaking testing on the assets held at nil value on the balance sheet to determine that they were still in existence. The remaining gross book value was then removed along with the equivalent offsetting accumulated depreciationfrom the balance sheet.These adjustments totalled, respectively, a credit and debitof £22,205k giving a net adjustment of nil.

4.3Following this exercise, the Council has been able to completely reconcile the balance sheet to the fixed asset register.

5. Firefighters’ Injury Compensation Scheme

5.1Under statute, firefighters permanently disabled in the course of duty are entitled to a lump sum payment and pension in compensation for their lost earning capacity. The Council is responsible for funding these payments and pensions and so a liability is recognised in the accounts.

5.2Under the previous accounting standards, the liability reflected was the cost of providing compensation to those firefighters who have been injured and become eligible for the payments. The introduction of the Code (and its adoption of the IAS 19 accounting standard around defined benefit pensions) means that the accounts also now reflect a liability relating to the potential future recipients of compensation.

5.3The total liability was reflected in the draft 2010-11 accounts and was shown as a movement in the 2010-11 year. During the summer, the Audit Commission determined that there were differing treatments of this change across the local government sector and clarified to councils nationally that they expected this adjustment to be treated as part of the transition to IFRS, not as an in-year adjustment.

5.4Accordingly, the Council obtained revised figures from the actuary and adjusted its accounts to reflect the liability arising at the opening balance sheet on 1st April 2009 and varying in line with actuarial assumptions at the restated closing balance sheet on 31st March 2010.

5.5The effect of this adjustment was to move actuarial losses totalling £14.6m that had been recognised in 2010-11 into previous years. This increased the actuarial gain shown in 2010-11 related to firefighers' pensions by the same amount.

5.6This liability is based on actuarial assumptions and figures are provided by the Council’s actuaries. The figures are prepared on a similar basis to the calculation of liabilities relating to the defined benefit pension schemes, and are subject to the same volatility going forward.

6.Other adjustments required following audit testing

6.1During the audit process it has been determined that a number of further changes were required to the accounts. These are detailed below:

  • Accrued employee absences – the provision for accrued employee absences was revised downward by £5,187k. This followed audit testing of the calculations for 2010-11 which found that the liability shown in the draft accounts was too large. The provision was released through the Comprehensive Income and Expenditure Statement but is financed by the Accumulated Absences Account so there is no impact on the General Fund
  • Following Audit Commission technical guidance, the receipt of payments in relation to assets leased to other organisations under finance leases were reclassified from Usable Capital Receipts to Deferred Capital Receipts (which are ‘unusable’). This change totalling £6,498k was made in the opening balance sheet at 1st April 2009 and an annual adjustment is made in each of the 31st March 2010 and 31st March 2011 balance sheets reflecting the rolling forward of the leases by a further year, totalling £71k and £74k respectively.
  • Adjustments were made to the classification of debtors and creditors by the type of counterparty following testing. This related to a debtor for Council Tax arrears which is now reflected in Other Local Authorities (£25,487k), a creditor related to Council Tax overpayments and prepayments now reflected in Other Local Authorities (£7,741k) and a debtor related to VAT which is now reflected as owed to Central Government (£5,300k)
  • There was a technical adjustment to the in-year treatment of grant income related to £4,109k of grant income that was initially treated as ‘Capital Grants received in advance’ rather than immediately recognised as income, though it was taken to income prior to the year-end. This was an in-year procedural adjustment that does not alter the core financial statements.

7.Suggested Resolution

7.1The Committee is invited to note and comment upon the report, and to approve the Final Annual Statement of Accounts (Appendix A).

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