Today, the 12th August, is referred by some as the Glorious 12th. At Arlingclose my technical colleagues have been long awaiting the Glorious 31st, the 31st of July, which was the date that Councils were required to publish their Draft Statements of Accounts, and now we are busily trawling through websites to see what we can find.
Latest information suggests that only 69% of local authorities complied with the July deadline. Continued delays in the audit process will further delay the publication of the final approved versions, something that would not be acceptable in the private sector.
So why do we get so excited about the publication of the accounts?
We like to look at the accounts to help us form a view of our client’s financial position, to understand their Capital Financing Requirement and the movements that have taken place over the previous 12 months, to see how balances and reserves have moved and to determine how investment balances have been built up.
We also use it as the basis for our forward looking Liability Benchmarking which helps inform our clients of their borrowing and investment strategies going forward. We are really interested in these documents and without this information our advice would be limited.
But not everyone is as interested as us. The accounts should provide information to all of an authority’s key stakeholders including elected members and members of the public as well as external organisations looking to understand the financial status of a local authority. The documents produced are full of information, but perhaps it is a case of information overload?
Local authority accounts are difficult things to understand, prepared in accordance with CIPFA’s Local Authority Code of Practice which is based on International Financial Reporting Standards (IFRS) but to further complicate the picture there are regulations set out by central government which require amendments to be made to the pure accounting transactions. Local authority accounts are not exactly the same as their private sector equivalents.
If you are not as technically minded as myself and my colleagues and just want to understand your local authority’s financial position which bits of the accounts should you focus on?
EXPLANATORY FOREWORD – This provides a commentary on the financial statements which should include an explanation of the key events that have taken place during the financial year and the effect these events have had on the financial position of the council concerned.
MOVEMENT IN RESERVES STATEMENT (MiRS) – This provides an analysis of the changes in each of the authority’s reserves during the year and it should be clear to the reader of the accounts what has caused the movements in those reserves. The MiRS is broken down as follows:
THE BALANCE SHEET – This is commonly referred to as a “snapshot” of an organisations financial position at a specific point in time, in the case of local authorities the 31st March. The balance sheet is split into two halves, assets, and liabilities (the top) and reserves (the bottom) as the name suggests these two halves should balance.
A local council’s balance sheet will include the following information:
The bottom half will include the reserves and will be split into:
COMPREHENSIVE INCOME AND EXPENDITURE SATEMENT (CIES) – This details how the authority performed over the financial year in question and whether its overall operations as a local authority made a surplus or a deficit. The CIES can be broken down into the following sections:
In addition to these two key statements the following may also be of interest:
Local authority accounts should demonstrate to the reader that the authority is managing taxpayers’ money through strong financial governance. It is a long held ambition of the sector to try to do this through the production of shorter and clearer financial statements, but our experience is that this is not happening.
As experts in the field of analysing local authority accounts Arlingclose is well placed to provide you or your organisation with any training needed to enable you to gain a more detailed understanding of this complex area, if its something you feel you need help with then please get in touch and we can discuss your requirements.