code of practice on local authority accounting in the...

guidance notesfor practitioners

2014/15 Accounts

Code of Practice onLocal Authority Accounting in theUnited Kingdom

CIPFA, the Chartered Institute of Public Finance and Accountancy, is the professional body for people in public finance. Our 14,000 members work throughout the public services, in national audit agencies, in major accountancy firms, and in other bodies where public money needs to be effectively and efficiently managed. As the world’s only professional accountancy body to specialise in public services, CIPFA’s qualifications are the foundation for a career in public finance. We also champion high performance in public services, translating our experience and insight into clear advice and practical services. Globally, CIPFA shows the way in public finance by standing up for sound public financial management and good governance.

CIPFA values all feedback it receives on any aspects of its publications and publishing programme. Please send your comments to [email protected]

Our range of high quality advisory, information and consultancy services help public bodies – from small councils to large central government departments – to deal with the issues that matter today. And our monthly magazine, Public Finance, is the most influential and widely read periodical in the field.

Here is just a taste of what we provide:

TISonline – online financial management guidance Recruitment services

Benchmarking Research and statistical information

Advisory services Seminars and conferences

Professional networks Education and training

Property and asset management services CIPFA Regions – UK-wide events run by CIPFA members

Call or visit our website to find out more about CIPFA, our products and services – and how we can support you and your organisation in these unparalleled times.

020 7543 5600 [email protected] www.cipfa.org

Environmental Information

This CIPFA publication is printed on certified FSC mixed sources coated grade stock containing 50% recovered waste and 50% virgin fibre.

Printed on stock sourced from well-managed forests, ISO 14001.

guidance notesfor practitioners

2014/15 Accounts

Code of Practice onLocal Authority Accounting in theUnited Kingdom

Page ii

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

Published by:

CIPFA \ THE CHARTERED INSTITUTE OF PUBLIC FINANCE AND ACCOUNTANCY

3 Robert Street, London WC2N 6RL

From 1 January 2015, CIPFA will be moving to 77 Mansell Street, London E1 8AN

020 7543 5600 \ [email protected] \ www.cipfa.org

© December 2014 CIPFA

ISBN 978 1 84508 418 9

Edited by Sarah Williams ([email protected])

Designed and typeset by Ministry of Design, Bath (www.ministryofdesign.co.uk)

Printed by Trident Printing, London

No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or publisher.

While every care has been taken in the preparation of this publication, it may contain errors for which the publisher and authors cannot be held responsible.

Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act, 1988, this publication may be reproduced, stored or transmitted, in any form or by any means, only with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms of licences issued by the Copyright Licensing Agency Ltd. Enquiries concerning reproduction outside those terms should be sent to the publishers at the above mentioned address.

Page iii

Schedule of Changes

These Guidance Notes reflect the key accounting changes principally introduced by the Code of Practice on Local Authority Accounting in the United Kingdom 2014/15 including:

i) A new Module 10 – Other Accounting Themes has been included in the 2014/15 Code Guidance Notes to provide practitioners with specific guidance in particular areas and includes:

Accounting for schools in local authorities in England and Wales, providing detailed guidance to assist local authorities with the consolidation of schools income, expenditure, assets, liabilities and reserves in their single entity financial statements.

Relevant extant LAAP Bulletins, including: – LAAP Bulletin 99 Reserves and Balances

– LAAP Bulletin 100 Project Plan for Implementation of the Measurement Requirements for Transport Infrastructure Assets by 2016/17, and

– LAAP Bulletin 86 (Update) Componentisation of Property, Plant and Equipment

ii) Group Accounts – Module 9 includes extensive revisions to reflect the introduction of the requirements of the five new or amended standards introduced by the IASB in May 2011, ie IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Ventures, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 Separate Financial Statements (as amended in 2011) and IAS 28 Investments in Associates and Joint Ventures (as amended in 2011).

iii) Accounting for local government reorganisation and other combinations – Module 2 has been updated to reflect the provisions of section 2.5 of the Code, which have been clarified and augmented, including a new definition of a function, clarification of the requirements for a transfer by absorption or a transfer by merger and relevant disclosure requirements.

iv) The Carbon Reduction Commitment Energy Efficiency Scheme – Module 2 has been updated for the consequences of the accounting requirements for the second phase of the scheme, which commenced in April 2014 and runs until March 2019.

v) Presentation of financial statements – Module 3 includes changes to section 3.4 of the Code on the presentation of financial statements to reflect the amendments to IAS 1 in respect of the new requirements for comparative information1 and clarification regarding the complete list of financial statements.

vi) Dedicated Schools Grant (DSG) – the latest on the disclosure requirements for DSG in Module 3.

vii) Example Financial Statements – a new section C has been added to include CIPFA’s updated How to Tell the Story, which 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, and covers the main financial statements. It also includes the Public Finance article ‘Clearing Out the Clutter’.

1. As required by the Annual Improvements to IFRS 2009–2012 Cycle issued in May 2012.

Page iv


viii) Module 4 has been augmented to reflect the latest thinking in a number of areas and practitioners’ FAQs and provides additional clarification guidance and examples in areas such as frequency of valuations for property, plant and equipment, component accounting and impairment of assets.

ix) IAS 32 Financial Instruments – Module 7 has been updated to reflect the amendments to IAS 32 Financial Instruments: Presentation (Offsetting Financial Assets and Liabilities), December 2011, as introduced by the 2014/15 Code, which requires reference to the amended application guidance for offsetting financial assets and liabilities, where applicable.

x) Module 6 has been updated to reflect the 2014/15 Code’s clarification on the reporting requirements for the Statement on the System of Internal Financial Control for pensions administering authorities in Scotland.

xi) The Guidance Notes reflect amendments and changes to legislation; for example, the 2014 amendments to The Local Authorities (Capital Finance and Accounting) (Wales) Regulations regarding equal pay compensation payments, and The Local Authority Accounts (Scotland) Regulations 2014 affecting Scottish local government.

The Guidance Notes have been revised in a number of areas to take account of issues arising from practitioner queries raised through, for example, CIPFA’s Technical Enquiry Service.

The Accounts and Audit (Wales) Regulations 2014The Accounts and Audit (Wales) Regulations 2014 had not been issued at the time of publication of these Guidance Notes. Authorities in Wales will therefore need to consider the effect of the any new legislative requirements when the regulations are issued.

Page v

Contents

MODULE 1

INTRODUCTION ........................................................................................................................................................... 1A OBJECTIVE OF THE CODE ..................................................................................................................... 1

The Status of the Guidance Notes and Other Supporting Documents ..................................................1Objective of the Code ......................................................................................................................................2Hierarchy of Sources for the Code’s Provisions ..........................................................................................2

Statutory Requirements .........................................................................................................................2Accounting Standards ............................................................................................................................3

Adaptations of IFRS and Transactions Not Covered by the Code ...........................................................3B APPLICABILITY OF THE CODE ............................................................................................................ 4

Overall Legal Requirements in Respect of the Form of Accounts ...........................................................6England .....................................................................................................................................................6Wales ..........................................................................................................................................................7Scotland ....................................................................................................................................................9Northern Ireland ....................................................................................................................................11

C CONTEXT OF THE CODE’S RECOMMENDATIONS .............................................................................12Statutory Sources ...........................................................................................................................................12Basis of Preparation – True and Fair ...........................................................................................................12Influence of the Financial Reporting Advisory Board .............................................................................13Providing Additional Information ...............................................................................................................13Professional Framework ................................................................................................................................13

D ACCOUNTING STANDARDS ................................................................................................................15E PURPOSE OF THE STATEMENT OF ACCOUNTS ................................................................................16

Common Pattern of Presentation ...............................................................................................................16Interpretation and Explanation ...................................................................................................................16Relationship with Summary Accounts ......................................................................................................16

F PUBLICATION ......................................................................................................................................17England ............................................................................................................................................................17Wales ................................................................................................................................................................17Approval in England and Wales ...................................................................................................................18Scotland ...........................................................................................................................................................18Northern Ireland .............................................................................................................................................19Meaning of Publication .................................................................................................................................19Relationship with the Annual Report .........................................................................................................19Auditor’s Report ..............................................................................................................................................19Audit Considerations .....................................................................................................................................19

APPENDIX: RELEVANT STANDARDS.......................................................................................................................21

Page vi


MODULE 2

CONCEPTS AND PRINCIPLES ..................................................................................................................................25A CONCEPTS ............................................................................................................................................25

Introduction ....................................................................................................................................................25Accounting Requirements ............................................................................................................................26

Objectives of the Financial Statements ............................................................................................26Financial Performance Reflected by Accrual Accounting ......................................................................28

Accruals Basis ........................................................................................................................................28Underlying Assumption ................................................................................................................................29

Going Concern ........................................................................................................................................29Qualitative Characteristics of Useful Financial Information .................................................................29Fundamental Qualitative Characteristics ..................................................................................................30

Introduction ...........................................................................................................................................30Relevance ................................................................................................................................................30Materiality ..............................................................................................................................................31Faithful Representation ........................................................................................................................33Completeness .........................................................................................................................................33Neutrality ................................................................................................................................................33Free from Error .......................................................................................................................................34Faithful Representation and Substance over Form ........................................................................34Enhancing Qualitative Characteristics ..............................................................................................35Applying Enhancing Qualitative Characteristics ............................................................................38Primacy of Legislative Requirements ...............................................................................................38

Elements of the Financial Statements .......................................................................................................38Balance Sheet ........................................................................................................................................39Comprehensive Income and Expenditure Statement ....................................................................42

Recognition of the Elements of the Financial Statements ....................................................................43Measurement of the Elements of Financial Statements ........................................................................43Fair Value .........................................................................................................................................................44

B BUSINESS IMPROVEMENT DISTRICT SCHEMES (ENGLAND, WALES AND SCOTLAND); BUSINESS RATE SUPPLEMENTS (ENGLAND); AND COMMUNITY INFRASTRUCTURE LEVY (ENGLAND AND WALES) .....................................................................................................................46Business Improvement District Schemes – Introduction ......................................................................46Business Improvement District Schemes – Accounting Requirements ..............................................46

Authority Acting as BID Body .............................................................................................................46Authority Acting as Billing Authority Only ......................................................................................46Costs of Balloting ..................................................................................................................................48

Business Rate Supplements – Introduction .............................................................................................48Business Rate Supplements – Authority Acting as Billing Authority Only ........................................50

Accounting Requirements ...................................................................................................................50Statutory Disclosure Requirements ...................................................................................................51

Business Rate Supplements – Authority Acting as Levying Authority Only ......................................52Accounting Requirements ...................................................................................................................52Statutory Accounting Requirements .................................................................................................53Statutory Disclosure Requirements ...................................................................................................55

Business Rate Supplements – Authority Acting as Billing and Levying Authority ..........................55Accounting Requirements ...................................................................................................................55

Page vii

CONTENTS

Statutory Accounting Requirements .................................................................................................56Statutory Disclosure Requirements ...................................................................................................57

Community Infrastructure Levy – Introduction ......................................................................................58Accounting Requirements ...................................................................................................................59Authority Acting as Charging Authority ...........................................................................................59Authority Acting as Collecting Authority .........................................................................................60

C GOVERNMENT GRANTS AND NON-GOVERNMENT GRANTS ..........................................................60Introduction ....................................................................................................................................................60Stipulations, Conditions and Restrictions .................................................................................................61Recognition and Presentation – Grants and Contributions ...................................................................62Recognition and Presentation – Donated Assets .....................................................................................64Repayment of Grants and Contributions ...................................................................................................65Future Specified Events Giving Rise to a Return Obligation ..................................................................65Transfers ...........................................................................................................................................................66Statutory Accounting Requirements – Capital Grants and Contributions ..........................................67Statutory Accounting Requirements – Donated Assets .........................................................................70

Repayment of Capital Grants and Contributions ............................................................................72Summary Example of Accounting Arrangements for a Capital Grant .................................................73Accounting Requirements – Revenue Grants and Contributions .........................................................75Grants Applied to Revenue Expenditure Funded from Capital under Statute (REFCUS) ..................77Scottish Government Statutory Guidance on Grants, Contributions and Donated Assets ..............79Developers’ Contributions ............................................................................................................................79Local Services Support Grant (England Only) ...........................................................................................79

D LANDFILL ALLOWANCE AND OTHER TRADING SCHEMES .............................................................80Landfill Allowances ........................................................................................................................................80

Introduction ...........................................................................................................................................80Arrangements for England and Scotland .........................................................................................80Arrangements for Wales .......................................................................................................................80

Carbon Reduction Commitment (CRC) Energy Efficiency Scheme ......................................................80Introduction ...........................................................................................................................................80Accounting for the CRC Energy Efficiency Scheme in Phase 2 ....................................................82The Accounting Treatment for Unused Phase 1 CRC Allowances ................................................83Disclosure Requirements .....................................................................................................................83CRC Emissions in Schools – Local Authority Responsibilities ......................................................83Further Guidance ...................................................................................................................................84

E COMBINATIONS OF PUBLIC SECTOR BODIES .................................................................................84Introduction ....................................................................................................................................................84Transfer by Absorption ..................................................................................................................................85

Gross Expenditure, Income and Net Expenditure of Acquired Functions ...................................85Gross Expenditure (including Depreciation and Impairment of Non-current Assets, the

Current and Past Service Costs of Pensions and Gains and Losses on Settlements and Curtailment of Pensions, Provisions and Exceptional Items), Income and Net Expenditure on General Fund Continuing Operations .................................................................85

Transferred Functions ...........................................................................................................................86Transfer by Merger .........................................................................................................................................87Mid-year Transfers .........................................................................................................................................88Presentation and Disclosure ........................................................................................................................88

Page viii


Detailed Accounting Requirements for Combinations of Public Sector Bodies ................................91F PRINCIPAL AND AGENT .....................................................................................................................94

Introduction ....................................................................................................................................................94Features of Agent and Principal Relationships ........................................................................................94Accounting Treatments .................................................................................................................................95Disclosure Requirements ..............................................................................................................................96

G REVENUE RECOGNITION ....................................................................................................................96Introduction ....................................................................................................................................................96Recognition and Measurement ...................................................................................................................97

Measurement .........................................................................................................................................97Recognition ............................................................................................................................................98

Timing Differences ...................................................................................................................................... 104Disclosure Requirements ........................................................................................................................... 104

H TAX INCOME (COUNCIL TAX, RESIDUAL COMMUNITY CHARGES, NON-DOMESTIC RATES AND RATES) .......................................................................................................................................105Non-domestic Rates (Wales and Scotland) ............................................................................................ 105Non-domestic Rates – England ................................................................................................................ 106

Apportioning Collection Fund Surpluses and Deficits in Relation to Non-domestic Rates........................................................................................................................ 109

Comprehensive Income and Expenditure Statement – Implications of Agency Accounting in Relation to Non-domestic Rates ......................................................... 110

Apportioning Non-domestic Rate Arrears and Overpayments ........................................................... 115Cash Flow Statement Implications of Agency Accounting in Relation to

Non-domestic Rates........................................................................................................................ 117Pool of Authorities for Non-domestic Rating Income ................................................................ 118Non-domestic Rates – Retention of Percentage of Income Growth

(England and Scotland) .................................................................................................................. 118Non-domestic Rates – Business Rates Incentivisation Scheme ............................................... 119

Council Tax in England ............................................................................................................................... 119Apportioning Collection Fund Surpluses and Deficits in Relation to Council Tax ................. 121Comprehensive Income and Expenditure Statement – Implications of Agency Accounting

in Relation to Council Tax .............................................................................................................. 123Apportioning Council Tax Arrears and Overpayments ......................................................................... 125

Cash Flow Statement Implications of Agency Accounting in Relation to Council Tax ........ 127Residual Community Charges in England ............................................................................................. 128Council Tax in Scotland .............................................................................................................................. 128Council Tax in Wales ................................................................................................................................... 128

I VALUE ADDED TAX ............................................................................................................................129Introduction ................................................................................................................................................. 129Accounting Requirements ......................................................................................................................... 129

MODULE 3

THE FINANCIAL STATEMENTS ..............................................................................................................................131A THE STATEMENT OF ACCOUNTS ......................................................................................................131

General Requirements for the Statement of Accounts ........................................................................ 133Specific Requirements for the Financial Statements .......................................................................... 134

Page ix

CONTENTS

B EXPLANATORY FOREWORD .............................................................................................................143Introduction ................................................................................................................................................. 143Recommended Topics for Inclusion in the Explanatory Foreword .................................................... 144Recommended Practice ............................................................................................................................ 146Voluntary/Optional Approach to the Production of the Explanatory Foreword ............................... 148

C STATEMENT OF RESPONSIBILITIES ...............................................................................................152Introduction ................................................................................................................................................. 152

D ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS ....................153Introduction ................................................................................................................................................. 153

Impact of New Standards ................................................................................................................. 153Selection and Application of Accounting Policies ................................................................................ 153

Materiality and Accounting Policies .............................................................................................. 153Transactions Outside the Scope of the Code ................................................................................. 154Consistency ......................................................................................................................................... 155Changes in Accounting Policies ...................................................................................................... 155Applying a Change in Accounting Policy ...................................................................................... 156

Changes in Accounting Estimates ........................................................................................................... 158Errors .............................................................................................................................................................. 160Disclosures.................................................................................................................................................... 162

Changes in Accounting Policy ......................................................................................................... 162Future Accounting Standards – Disclosures ................................................................................. 166Changes in Accounting Estimates – Disclosures ......................................................................... 167

Prior Period Errors ....................................................................................................................................... 167E MOVEMENT IN RESERVES STATEMENT ..........................................................................................170

Introduction ................................................................................................................................................. 170Contents of the Movement in Reserves Statement .............................................................................. 171Adjustments between Accounting Basis and Funding Basis ............................................................. 174Design of the Movement in Reserves Statement .................................................................................. 179

F COMPREHENSIVE INCOME AND EXPENDITURE STATEMENT .....................................................180Introduction ................................................................................................................................................. 180Contents of the Comprehensive Income and Expenditure Statement ............................................. 180Design of the Comprehensive Income and Expenditure Statement ................................................. 184Presentation of Items in Other Comprehensive Income and Expenditure ...................................... 185

G BALANCE SHEET ................................................................................................................................186Introduction ................................................................................................................................................. 186Contents of the Balance Sheet ................................................................................................................. 187

Current or Non-current? .................................................................................................................... 193Disclosures in Relation to the Balance Sheet ........................................................................................ 194

H CASH FLOW STATEMENT ..................................................................................................................195Introduction ................................................................................................................................................. 195Cash and Cash Equivalents ....................................................................................................................... 196

Cash ...................................................................................................................................................... 196Cash Equivalents ................................................................................................................................ 196Foreign Currency ................................................................................................................................ 198Obtaining or Losing Control of Subsidiaries .................................................................................. 198

Presentational Requirements for the Direct Method ........................................................................... 198Presentational Requirements for the Indirect Method ........................................................................ 204

Page x


Additional Disclosure Requirements Applicable to Indirect and Direct Methods .......................... 207I NOTES TO THE FINANCIAL STATEMENTS ......................................................................................207

Introduction ................................................................................................................................................. 207Summary of Significant Accounting Policies ........................................................................................ 209Judgements Made by Management ........................................................................................................ 211Assumptions about the Future ................................................................................................................. 211Segment Reporting ..................................................................................................................................... 213

Management Information to be Used ............................................................................................ 213Segments to be Disclosed ................................................................................................................. 215Management Information to be Disclosed ................................................................................... 215

Disclosure Requirements ........................................................................................................................... 218Acquired and Discontinued Operations (1) ................................................................................... 218Trading Operations (2) ....................................................................................................................... 219Agency Income and Expenditure (3) .............................................................................................. 224Pooled Budgets for Health and Social Care (4) ............................................................................. 225Members’ Allowances (5) .................................................................................................................. 226Officers’ Remuneration (including exit packages) (6) ................................................................. 227Fees Payable to Auditors (7) ............................................................................................................ 227Local Taxation in Wales (8) ............................................................................................................... 229Domestic and Non-domestic Rates in Northern Ireland (9) ...................................................... 229Amounts Shown in the Movement in Reserves Statement (10) ................................................ 229Nature and Amount of Trust Funds (11) ........................................................................................ 229Components of Cash and Cash Equivalents (12) .......................................................................... 232Officers’ Remuneration (1) ................................................................................................................ 232Schemes under the Transport Act (2) ............................................................................................. 232Dedicated Schools Grant (England) (3) .......................................................................................... 233

Officers’ Remuneration – England and Wales ....................................................................................... 236Definitions Common to the Banding Note and the Senior Employees Note .......................... 236Banding Note ...................................................................................................................................... 239Senior Employees Note ..................................................................................................................... 240

Remuneration Report – Scotland ............................................................................................................. 243Statutory Definitions ......................................................................................................................... 243Overview of the Disclosure Requirements ..................................................................................... 244Implementing the Requirements.................................................................................................... 245

Exit Packages – All Administrations ........................................................................................................ 245Recognition and Measurement ....................................................................................................... 246Pension Strain ..................................................................................................................................... 246Disclosing Costs Charged to the Comprehensive Income and Expenditure Statement ....... 247Definition of Exit Packages............................................................................................................... 247Ill Health Retirements ....................................................................................................................... 247

J HOUSING REVENUE ACCOUNT (ENGLAND)....................................................................................247Introduction and Statutory Background ................................................................................................ 247The HRA Income and Expenditure Statement ....................................................................................... 248

Repairs and Maintenance ................................................................................................................. 250Supervision and Management ......................................................................................................... 251Rents, Rates, Taxes and Other Charges .......................................................................................... 251Depreciation, Impairments and Revaluation Losses in relation to Non-current Assets ...... 251Debt Management Costs ................................................................................................................... 252

Page xi

CONTENTS

Movement in the Allowance for Bad or Doubtful Debts .............................................................. 252Sums Directed by the Secretary of State that are Expenditure in Accordance

with the Code ................................................................................................................................... 252Dwelling Rents .................................................................................................................................... 252Non-dwelling Rents ............................................................................................................................ 253Charges for Services and Facilities.................................................................................................. 253Contributions Towards Expenditure ................................................................................................ 253Sums Directed by the Secretary of State that are Income in Accordance with Proper

Practices ............................................................................................................................................ 253HRA Share of Corporate and Democratic Core .............................................................................. 253HRA Share of Other Amounts Included in the Whole Authority Net Expenditure of

Continuing Operations but Not Allocated to Specific Services ............................................... 254Gain or Loss on the Sale of HRA Non-current Assets................................................................... 254Interest Payable and Similar Charges ............................................................................................ 254Interest and Investment Income .................................................................................................... 255Net Interest on the Net Defined Benefit Liability (Asset) ........................................................... 255Capital Grants and Contributions .................................................................................................... 255

Movement on the HRA Statement ........................................................................................................... 255Disclosure Requirements ........................................................................................................................... 258Statutory Disclosure Requirements ......................................................................................................... 259

K HOUSING REVENUE ACCOUNT (WALES) ........................................................................................261Introduction and Statutory Background ................................................................................................ 261The HRA Income and Expenditure Statement ....................................................................................... 261

Management and Maintenance – Repairs and Maintenance .................................................... 263Management and Maintenance – Supervision and Management ............................................ 264Rents, Rates, Taxes and Other Charges .......................................................................................... 264Negative Subsidy Payable to the Welsh Government ................................................................. 264Depreciation, Impairments and Revaluation Losses in relation to Non-current Assets ...... 264Debt Management Costs ................................................................................................................... 265Movement in the Allowance for Bad or Doubtful Debts .............................................................. 265Sums Directed by the Welsh Government that are Expenditure in Accordance

with the Code ................................................................................................................................... 265Dwelling Rents .................................................................................................................................... 265Non-dwelling Rents ............................................................................................................................ 266Charges for Services and Facilities.................................................................................................. 266Contributions Towards Expenditure ................................................................................................ 266HRA Subsidy Receivable ................................................................................................................... 266Major Repairs Allowance ................................................................................................................... 266Sums Directed by the Welsh Government that are Income in Accordance with

Proper Practices ............................................................................................................................... 267HRA Share of Corporate and Democratic Core .............................................................................. 267HRA Share of Other Amounts included in the Whole Authority Net Expenditure of

Continuing Operations but Not Allocated to Specific Services ............................................... 267Gain or Loss on the Sale of HRA Non-current Assets................................................................... 267Interest Payable and Similar Charges ............................................................................................ 268Interest and Investment Income .................................................................................................... 268Net Interest on the Net Defined Benefit Liability (Asset) ........................................................... 268Capital Grants and Contributions .................................................................................................... 268

Page xii


Movement on the HRA Statement ........................................................................................................... 268Disclosure Requirements ........................................................................................................................... 271

L HOUSING REVENUE ACCOUNT (SCOTLAND) ..................................................................................272Introduction and Statutory Background ................................................................................................ 272The HRA Income and Expenditure Statement ....................................................................................... 273

Repairs and Maintenance ................................................................................................................. 275Supervision and Management ......................................................................................................... 275Depreciation, Impairments and revaluation losses in relation to Non-current Assets ........ 276Movement in the Allowance for Bad or Doubtful Debts .............................................................. 276Other Expenditure .............................................................................................................................. 276Dwelling Rents .................................................................................................................................... 277Non-dwelling Rents ............................................................................................................................ 277Charges for Services and Facilities.................................................................................................. 277Housing Support Grant ...................................................................................................................... 277Other Income ...................................................................................................................................... 277HRA Share of Corporate and Democratic Core .............................................................................. 277HRA Share of Other Amounts included in the Whole Authority Net Cost of Services

but Not Allocated to Specific Services ........................................................................................ 278Gain or Loss on the Sale of HRA Non-current Assets................................................................... 278Interest Payable and Similar Charges ............................................................................................ 278Interest and Investment Income .................................................................................................... 279Net Interest on the Net Defined Benefit Liability (Asset) ........................................................... 279Capital Grants and Contributions .................................................................................................... 279

Movement on the HRA Statement ........................................................................................................... 279Disclosures.................................................................................................................................................... 281

M COLLECTION FUND (ENGLAND) .......................................................................................................282Introduction ................................................................................................................................................. 282Accounting Policies for the Collection Fund .......................................................................................... 282The Collection Fund Statement ................................................................................................................ 283

N COUNCIL TAX INCOME ACCOUNT AND NON-DOMESTIC RATE ACCOUNT (SCOTLAND) ..........289Council Tax Income Account .................................................................................................................... 289

Statutory Background ....................................................................................................................... 289Accounting Requirements ................................................................................................................ 289

Non-Domestic Rate Account ..................................................................................................................... 290Statutory Background ....................................................................................................................... 290Accounting Requirements ................................................................................................................ 290

O STATEMENTS REPORTING REVIEWS OF INTERNAL CONTROLS OR INTERNAL FINANCIAL CONTROLS ..........................................................................................................................................293Development of Governance Reporting .................................................................................................. 293Arrangements for 2014/15 ........................................................................................................................ 294Annual Governance Statement ................................................................................................................ 295

P EVENTS AFTER THE REPORTING PERIOD ......................................................................................296Introduction ................................................................................................................................................. 296Authorised for Issue Date .......................................................................................................................... 296Adjusting and Non-adjusting Events ...................................................................................................... 297Disclosure Requirements ........................................................................................................................... 298

Page xiii

CONTENTS

Q RELATED PARTY DISCLOSURES ......................................................................................................299Introduction ................................................................................................................................................. 299Applicability to Local Government .......................................................................................................... 299Relationships that Give Rise to Related Parties .................................................................................... 300Identifying Material Transactions and Balances .................................................................................. 304

Materiality ........................................................................................................................................... 305Practicalities of Identifying Transactions ..................................................................................... 305

Presentation and Disclosure of Relationships, Transactions and Balances .................................... 306

APPENDIX: INTRODUCTION ..................................................................................................................................309Section A: Example Financial Statements and Notes to the Accounts for Local Authorities

2014/15 ...................................................................................................................................................... 309Section B: Example Financial Statements and Notes to the Accounts for Local Authorities

2014/15 (Alternative Presentation) ...................................................................................................... 310Section C: How to Tell the Story: Local Authority Financial Statements (Second Edition) ........... 310

SECTION A

EXAMPLE FINANCIAL STATEMENTS AND NOTES TO THE ACCOUNTS FOR LOCAL AUTHORITIES 2014/15 ..........................................................................................................................................311

CONTENTS ...............................................................................................................................................311Movement in Reserves Statement,, ......................................................................................................... 313

Comprehensive Income and Expenditure Statement Format 1 ......................................................... 315Comprehensive Income and Expenditure Statement 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) .................................................................................... 317

Balance Sheet .............................................................................................................................................. 319Cash Flow Statement .................................................................................................................................. 321

NOTES TO THE ACCOUNTS1. ACCOUNTING POLICIES ...................................................................................................................322

i. General Principles .................................................................................................................................... 322ii. Accruals of Income and Expenditure [A] ............................................................................................ 322[iii. Acquisitions and Discontinued Operations ..................................................................................... 323

Acquired operations [B] ..................................................................................................................... 323Discontinued operations [H] ............................................................................................................. 323

iv. Cash and Cash Equivalents [E] ............................................................................................................. 323v. Prior Period Adjustments, Changes in Accounting Policies and Estimates and Errors (K) ....... 323vi. Charges to Revenue for Non-current Assets ..................................................................................... 324vii. Employee Benefits [I] ........................................................................................................................... 324

Benefits Payable During Employment ........................................................................................... 324Termination Benefits ......................................................................................................................... 324Post-employment Benefits............................................................................................................... 325

viii. Events After the Reporting Period [J] ............................................................................................... 327ix. Financial Instruments [L] ..................................................................................................................... 327

Loans and Receivables ...................................................................................................................... 328Available-for-Sale Assets .................................................................................................................. 329

[x. Foreign Currency Translation [M] ........................................................................................................ 330xi. Government Grants and Contributions [N] ........................................................................................ 330xii. Heritage Assets [O] ............................................................................................................................... 331

Page xiv


Tangible and Intangible Heritage Assets (described in this summary of significant accounting policies as heritage assets) ...................................................................................... 331

Heritage Assets – General ................................................................................................................. 333xiii. Intangible Assets [P] ........................................................................................................................... 333[xiv. Interests in Companies and Other Entities .................................................................................... 334xv. Inventories and Long-term Contracts [Q] ......................................................................................... 334xvi. Investment Property [R] ..................................................................................................................... 334xvii. Jointly Controlled Operations and Jointly Controlled Assets ..................................................... 335xviii. Leases [T] ............................................................................................................................................. 335

The Authority as Lessee .................................................................................................................... 335The Authority as Lessor .................................................................................................................... 336

xix. Overheads and Support Services [V] ................................................................................................. 337xx. Property, Plant and Equipment [X] .................................................................................................... 337

Recognition ......................................................................................................................................... 338Measurement ...................................................................................................................................... 338Impairment ......................................................................................................................................... 339Depreciation ........................................................................................................................................ 339Disposals and Non-current Assets Held for Sale [U] .................................................................... 340

xxi. Private Finance Initiatives (PFI) and Similar Contracts [W] ......................................................... 341xxii. Provisions, Contingent Liabilities and Contingent Assets .......................................................... 342

Provisions [Y] ....................................................................................................................................... 342Contingent Liabilities [G] .................................................................................................................. 343Contingent Assets [F] ......................................................................................................................... 343

xxiii. Reserves [Z] ......................................................................................................................................... 343xxiv. Revenue Expenditure Funded from Capital under Statute [AA] ................................................ 343xxv. VAT [AB] .................................................................................................................................................. 343

2. ACCOUNTING STANDARDS THAT HAVE BEEN ISSUED BUT HAVE NOT YET BEEN ADOPTED ............................................................................................................................................344

3. CRITICAL JUDGEMENTS IN APPLYING ACCOUNTING POLICIES ...............................................3444. ASSUMPTIONS MADE ABOUT THE FUTURE AND OTHER MAJOR SOURCES OF

ESTIMATION UNCERTAINTY ............................................................................................................3455. MATERIAL ITEMS OF INCOME AND EXPENSE ...............................................................................3466. EVENTS AFTER THE REPORTING PERIOD ......................................................................................3467. ADJUSTMENTS BETWEEN ACCOUNTING BASIS AND FUNDING BASIS

UNDER REGULATIONS ......................................................................................................................347

General Fund Balance ................................................................................................................................. 347Housing Revenue Account Balance ......................................................................................................... 347Major Repairs Reserve ................................................................................................................................ 348Capital Receipts Reserve ........................................................................................................................... 348Capital Grants Unapplied ........................................................................................................................... 348

8. TRANSFERS TO/FROM EARMARKED RESERVES ...........................................................................3559. OTHER OPERATING EXPENDITURE ................................................................................................35510. FINANCING AND INVESTMENT INCOME AND EXPENDITURE ...................................................35611. TAXATION AND NON-SPECIFIC GRANT INCOME AND EXPENDITURE .....................................35612. PROPERTY, PLANT AND EQUIPMENT ............................................................................................35713. HERITAGE ASSETS ...........................................................................................................................36214. INVESTMENT PROPERTIES .............................................................................................................364

Page xv

CONTENTS

15. INTANGIBLE ASSETS .......................................................................................................................36516. FINANCIAL INSTRUMENTS .............................................................................................................368

Material Soft Loans Made by the Authority .................................................................................. 36917. INVENTORIES ...................................................................................................................................37418. CONSTRUCTION CONTRACTS .........................................................................................................37419. DEBTORS ...........................................................................................................................................37520. CASH AND CASH EQUIVALENTS .....................................................................................................37521. ASSETS HELD FOR SALE..................................................................................................................37622. CREDITORS .......................................................................................................................................37623. PROVISIONS .....................................................................................................................................37724. USABLE RESERVES ..........................................................................................................................37825. UNUSABLE RESERVES .....................................................................................................................378

Revaluation Reserve .......................................................................................................................... 378Available for Sale Financial Instruments Reserve........................................................................ 379Capital Adjustment Account ............................................................................................................ 379Financial Instruments Adjustment Account ................................................................................ 381Pensions Reserve ................................................................................................................................ 382Deferred Capital Receipts Reserve (England and Wales) ............................................................ 382Collection Fund Adjustment Account ............................................................................................ 383Unequal Pay Back Pay Account ...................................................................................................... 383Accumulated Absences Account ..................................................................................................... 383

26. CASH FLOW STATEMENT – OPERATING ACTIVITIES ..................................................................38427. CASH FLOW STATEMENT – INVESTING ACTIVITIES ...................................................................38628. CASH FLOW STATEMENT – FINANCING ACTIVITIES ...................................................................38629. AMOUNTS REPORTED FOR RESOURCE ALLOCATION DECISIONS .............................................386

Reconciliation of [Directorate] Income and Expenditure to Cost of Services in the Comprehensive Income and Expenditure Statement .............................................................. 388

Reconciliation to Subjective Analysis ............................................................................................ 389[30. ACQUIRED AND DISCONTINUED OPERATIONS ..........................................................................39131. TRADING OPERATIONS ...................................................................................................................39132. AGENCY SERVICES...........................................................................................................................393[33. ROAD CHARGING SCHEMES UNDER THE TRANSPORT ACT 2000 [OR TRANSPORT

(SCOTLAND) ACT 2001] ....................................................................................................................39334. POOLED BUDGETS............................................................................................................................39335. MEMBERS’ ALLOWANCES ...............................................................................................................39436. OFFICERS’ REMUNERATION ...........................................................................................................39537. EXTERNAL AUDIT COSTS ................................................................................................................397[38. DEDICATED SCHOOLS GRANT .......................................................................................................39739. GRANT INCOME ................................................................................................................................398

Current Liabilities ........................................................................................................................................ 399Current Liabilities ........................................................................................................................................ 400Long-term Liabilities .................................................................................................................................. 400

40. RELATED PARTIES ...........................................................................................................................401Central Government ........................................................................................................................... 402Members............................................................................................................................................... 402Officers ................................................................................................................................................. 402Other Public Bodies [subject to common control by central government] ............................. 402

Page xvi


Entities Controlled or Significantly Influenced by the Authority ............................................. 40341. CAPITAL EXPENDITURE AND CAPITAL FINANCING ...................................................................40342. LEASES ..............................................................................................................................................404

Authority as Lessee ............................................................................................................................ 404Authority as Lessor ............................................................................................................................ 406

43. PRIVATE FINANCE INITIATIVES (PFI) AND SIMILAR CONTRACTS ...........................................408Leisure Services PFI Scheme ............................................................................................................ 408

44. IMPAIRMENT LOSSES .....................................................................................................................41045. CAPITALISATION OF BORROWING COSTS ...................................................................................41046. TERMINATION BENEFITS ................................................................................................................41047. PENSIONS SCHEMES ACCOUNTED FOR AS DEFINED CONTRIBUTION SCHEMES ...................41048. DEFINED BENEFIT PENSION SCHEMES ........................................................................................411

Participation in Pension Schemes ........................................................................................................... 411Discretionary Post-retirement Benefits ......................................................................................... 412

Transactions Relating to Post-employment Benefits .......................................................................... 412Pensions Assets and Liabilities Recognised in the Balance Sheet .................................................... 414Reconciliation of the Movements in the Fair Value of Scheme (Plan) Assets ................................. 414Reconciliation of Present Value of the Scheme Liabilities (Defined Benefit Obligation) .............. 415Local Government Pension Scheme assets comprised:Basis for Estimating Assets and Liabilities ............................................................................................ 418Asset and Liability Matching (ALM) Strategy (where applicable) ...................................................... 419Impact on the Authority’s Cash Flows .................................................................................................... 420

49. CONTINGENT LIABILITIES .............................................................................................................42050. CONTINGENT ASSETS ......................................................................................................................42051. NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS ........................421

Market Risk .......................................................................................................................................... 42352. HERITAGE ASSETS: FIVE-YEAR SUMMARY OF TRANSACTIONS ...............................................42553. HERITAGE ASSETS: FURTHER INFORMATION ON THE MUSEUM’S COLLECTIONS ..................426

Ceramics, Porcelains and Figurines ................................................................................................ 426Art Collection....................................................................................................................................... 426Machinery, Equipment and Other Artefacts relating to the Pottery Industry ....................... 426Archaeology Collection ..................................................................................................................... 427Heritage Assets of Particular Importance ..................................................................................... 427Preservation and Management........................................................................................................ 428

54. TRUST FUNDS ...................................................................................................................................428

SECTION B

EXAMPLE FINANCIAL STATEMENTS AND NOTES TO THE ACCOUNTS FOR LOCAL AUTHORITIES 2014/15 (ALTERNATIVE PRESENTATION) ...........................................................................................................................431

Movement in Reserves Statement ........................................................................................................... 431Comprehensive Income and Expenditure Statement Format 1* ....................................................... 434Comprehensive Income and Expenditure Statement 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) ........................................................................................................... 436

Balance Sheet .............................................................................................................................................. 438HERITAGE ASSETS..................................................................................................................................442SHORT-TERM DEBTORS , .......................................................................................................................444

Page xvii

CONTENTS

SECTION C

HOW TO TELL THE STORY: LOCAL AUTHORITY FINANCIAL STATEMENTS (SECOND EDITION) ...................445INTRODUCTION ......................................................................................................................................445COMPARISON WITH BUDGETS .............................................................................................................445GENERAL FUND AND HRA PERFORMANCE .........................................................................................447BALANCE SHEET .....................................................................................................................................450RESERVES ................................................................................................................................................451CASH FLOWS ...........................................................................................................................................452REMINDERS AND QUESTIONS RAISED ON THE IFRS-BASED CODE ................................................453CLEAR OUT THE CLUTTER .....................................................................................................................455

MODULE 4

NON-CURRENT ASSETS ..........................................................................................................................................457A INTRODUCTION .................................................................................................................................457

Key Principles of Accounting for Non-current Assets .......................................................................... 457Capital Accounting and Capital Financing Overview ........................................................................... 461

B PROPERTY, PLANT AND EQUIPMENT – RECOGNITION ...............................................................463What is Property, Plant and Equipment? ............................................................................................... 463De Minimis .................................................................................................................................................... 464Acquisition and Construction of Property, Plant and Equipment ..................................................... 466

Purchase Price .................................................................................................................................... 466Donated Assets ................................................................................................................................... 466Attributable Costs .............................................................................................................................. 470Dismantling, Removing and Restoring Costs ............................................................................... 474Applying Principles to Particular Areas of Expenditure .............................................................. 475

Subsequent Expenditure on Property, Plant and Equipment ............................................................. 478C PROPERTY, PLANT AND EQUIPMENT – MEASUREMENT AFTER RECOGNITION ......................483

Classes of Property, Plant and Equipment ............................................................................................. 483Infrastructure Assets ......................................................................................................................... 483Community Assets ............................................................................................................................. 484Assets Under Construction ............................................................................................................... 484Surplus Assets ..................................................................................................................................... 484

Measurement Bases for Classes of Property, Plant and Equipment ................................................. 484Existing Use Value versus Depreciated Replacement Cost ........................................................ 485Use of Depreciated Historical Cost as a Proxy .............................................................................. 486Existing Use Value – Social Housing ............................................................................................... 486Valuation of Surplus Assets .............................................................................................................. 487

The Cost Model ............................................................................................................................................ 487Arrangements for Revaluations ................................................................................................................ 489

The Valuation Process ....................................................................................................................... 489Commissioning Valuation Services ................................................................................................. 490Regularity of Valuations ................................................................................................................... 492Timing of Valuations .......................................................................................................................... 493Qualifications of Valuers ................................................................................................................... 494

Accounting for Revaluations ..................................................................................