Agenda item

Members considered a report reviewing accounting policies, actuary assumptions and materiality levels that would be used for the preparation of the 2019/20 accounts. 

 

The main points were highlighted:

 

·         There had been no major changes from 2018/19 to the accounting policies;

 

·         There had been several changes to the CIPFA Code of Practice:

o   An explanation of code approach;

o   An update to reflect 2018 International Accounting Standards Board Conceptual Framework Module 2 Section A;

o   Closure of Carbon Reduction Commitment Scheme;

o   Apprenticeship Levy – payments received in the Council’s digital apprenticeship service account were considered to be a government grant for accounting purposes;

o   Prepayment features with negative compensation;

o   Lender option borrower option clauses;

o   Group accounts scope clarification.

 

WLDC were fully compliant with all of these changes;

 

·         There was a significant accounting change in 2020/2021 relating to leases, which must be accounted for on the Council balance sheet;

 

·         The tri-ennial valuation would be concluded on 31 March 2020; the previous report was from 2016, so it was anticipated there would be a sizeable change in the asset and liability measurement this year for the Statement of Accounts;

 

·         There were no known proposals that the Authority were taking forward which would impact on the actuary assumptions;

 

·         An adjustment had been requested for the McCloud judgement; in December 2018, the Court of Appeal held the transitional protection offered to members of public sector pension schemes who were closer to retirement age gave rise to unlawful discrimination, as younger members were not eligible to receive it. This is known as the ‘McCloud Judgment’.

 

The pensions liability would need to be increased; two reports had been requested, with one being based on estimates to the end of April 2020 to allow the Finance team to shut the accounts within the statutory deadline, with the other report produced at the end of May 2020;

 

·         External Audit had set the materiality level (the level at which a discrepancy or omission had occurred for example) at £850,000; WLDC set their own materiality level at a different level.  The triviality level was set at £26,000;

 

·         The 2019/2020 Closedown Risk Register contained two medium risks and one high risk (Brexit);

 

·         A restatement of the accounts from 2018/19 had been required due to the omission of a correct valuation for the Guildhall, which led to an overstatement of the total expenditure in the Comprehensive Income and Expenditure Statement.  As a further consequence the surplus on the Provision of Services was understated.

 

A full review of all of the Authority’s land and buildings had been carried out, and the valuers were happy with the restatement.

 

Members then asked questions of officers present and also provided comment.  Further information was provided:

 

·         Brexit and now Covid-19 were having an effect on the economy; the situation with Brexit would take several years, whereas it was hoped that Covid-19 would be short term;

 

·         Elements of accounting variations were carried out on a ‘direct replacement cost’.  The cost of building materials had an effect on valuations.  Property values could drop, which would impact on investments and pensions held by the Authority;

 

·         In relation to the error made by the valuers, officers were going through the process of contract management to try and retrieve costs incurred by the Council;

 

·         The McCloud judgement had deemed that it was highly likely there would be an impact on public sector pensions; because of that, the liabilities faced by the Authority’s pension fund would increase.  The valuers were being asked to take this into account so that there would not be an understatement, or misstatement on the accounts;

 

·         The componentisation of assets enabled valuers to break down the main elements of buildings, land, heating, internal and external areas.  It allowed for a more accurate depreciation of the cost of buildings.

 

Componentisation valuations were set at £500,000, which was quite low for a local authority.  There were only 9 assets which exceeded that value.  Given the size of the authority’s asset register, £500,000 was deemed a reasonable level to set at this point.  If this level was set lower, then there would be a   This was all detailed in the accounting policy;

 

·         The majority of Council assets were finance leased and on the accounting balance sheet; therefore the figure involved in the International Financial Reporting Standards (IFRS) adjustment would be very low;

 

·         There were professional ethics to consider when looking at financial decisions that may be just below the materiality level.  There was a conscious decision from staff to include as much as possible that fell below this materiality level.

 

The materiality level was really important when considering what may happen in the future;

 

·         The Lea Fields Crematorium was not included in this closedown, but would be included from 31 March;

 

·         Investment decisions made by the Authority had been audited by officers from Internal Audit;

 

·         In the production of the Statement of Accounts, officers created 368 working papers, these in turn were audited by External Audit partners.

 

RESOLVED to:

 

(1)  Approve the proposed Accounting Policies (as included at Appendix 1);

 

(2)  Note the pension assumptions (as included at Appendix 2);

 

(3)  Note the risk assessment (as included at Appendix 3);

 

(4)  Approve the proposed materiality levels:

o   Disclosure of material items of income and expenditure - £750,000;

o   Manual accruals – limit of £2,000;

o   Disclosures - £750,000;

o   5% of income for continuing operations;

o   Related party transactions - £10,000;

o   Stocks – anything less than £10,000 is charged to revenue in year;

o   Fixed assets (Property, Plant and Equipment) – major components - £500,000.  Only assets with a value greater than £500,000 will be subject to the componentisation rules as per policy

o   The Council has a capital de-minimis level of £10,000 (i.e. at sums below this value are treated as revenue) and it is proposed that this sum remain unchanged.

 

(5)  Note the key closedown dates at Section 7.6;

 

(6)  Accept the main accounting changes for 2019/20 and onwards:

 

o   Amendment of Revenue from contracts with service recipients – ii accruals of income and expenditure;

o   Amendment of expected credit loss model – x Financial Instruments;

o   Local Government Pension Scheme – viii Employee Benefits