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The Statement of Accounts


Introduction

    1. The Local Audit and Accountability Act 2014 and the Accounts and Audit Regulations 2015
      require all authorities to prepare a statement of accounts for each financial year in
      accordance with proper practices. This guide presents the proper practices in relation to
      accounts that smaller authorities need to follow in preparing their annual accounts and
      follows the order set out in Section 2 of the annual return. To assist practitioners, a proforma
      annual return is available alongside this guide.
    2. For smaller authorities the statement of accounts needs to be prepared in accordance with, and in the form specified in, any annual return required by these proper practices in relation to accounts.
    3. Section 2 of the annual return is a smaller authority’s statement of accounts and takes the form of a summary income and expenditure account and a statement of balances. Where an authority’s gross income or expenditure is not more than £200,000 for that year, or for either of the two immediately preceding financial years, the statement may take the form of a summary receipts and payments account.
    4. An authority’s statement of accounts needs to be in the form set out in Section 2 of the annual return. The figures entered in the relevant cells are the authority’s receipts and payments for the year, or its income and expenditure, as appropriate. This guide assumes that most authorities maintain current records on a receipts and payments basis and convert these to income and expenditure at the year end, if necessary. Information and examples on the conversion process from receipts and payments to income and expenditure is provided in Section 5 and does not form part of proper practices.
    5. All highlighted cells of the annual return need to be completed, including writing ‘nil’ or ‘0’ in any cell that does not apply. Leaving cells blank may lead to questions by readers who may not be sure if the compiler intended a nil balance or whether an omission or error has occurred.
    6. All figures in Section 2 of the annual return need to agree to the authority’s primary accounting records. The RFO needs to be able to show how the figures in the annual return reconcile to those in the cashbook and other primary accounting records. Members need to see this reconciliation when they are asked to approve the statement of accounts in the annual return. Interested persons inspecting the accounts have a legal right to inspect the accounting records and all books, deeds, contracts, bills, vouchers, receipts and other documents relating to those records, including this reconciliation.
    7. The accounting statements present two years accounts for the authority, side by side. The prior year figures can be taken directly from the previous year’s annual return or, if this is the first year of accounts, the prior year figures will all be £0.
    8. The figures for the preceding financial year are shown in the first column so that members, local electors, residents and other interested parties can easily see any significant changes that have occurred during the current year and help to set the context in which the accounts need to be viewed.
    9. Where an error has been identified in the prior year’s accounts, after the external auditor’s review, which has resulted in the carried forward figure in Line 7 being amended, then the corrected figure needs to be carried forward to the current year’s annual return. The authority must clearly indicate that the prior year column in the accounting statements is ‘Restated’ and inform the external auditor.
    10. Authorities that change the basis on which their accounts are presented, i.e. from income and expenditure to receipts and payments (or vice versa), need to ensure that the comparative accounts in the annual return are shown on a consistent basis and are reported in Section 2 of the annual return by adding the word ‘Restated’ at the top of the prior year column, and explained by means of a note to the auditor.

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      Annual Accounting statements

      Line 1: Balances brought forward

    12. This cell shows the opening figure for the summary of the smaller authority’s annual accounts. It is the closing balance carried forward from the previous year’s accounting statements – see paragraph 2.19 below. The amount in the current year cell in Line 1 should be the same figure as the ‘balances carried forward’ figure in the prior year column at Line 7.
    13. Line 2: Precept or Rates and Levies

    14. For precepting authorities, this cell shows the total precept received or receivable in the year. For internal drainage boards this cell shows the total of rates and special levies received or receivable in the year. This cell should contain only the value of precepts or rates and levies received or receivable in the year. Any other receipts, including grants, are to be included in Line 3.
    15. Line 3: Total other receipts

    16. This cell shows the authority’s total income or receipts for the year, less the precept or rates and levies figure shown in Line 2. It will therefore include any repaid investments, any monies borrowed to finance projects, proceeds from the sale of fixed assets, fees, charges, and grants such as council tax support grant.
    17. Compilers of the accounting statements must exclude from the figure shown in Line 3 the value of any transactions recorded in the authority’s accounting records arising from daily cash management activities. These transactions include transfers between bank current and deposit accounts and other short-term deposits. It is correct to record such transactions in the cash book for control and reconciliation purposes. However, they are not reported in the accounting statements because these transfers do not represent either receipts or payments, or income or expenditure for the authority.

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      Line 4: Staff costs

    19. This cell shows all the costs incurred by the authority in relation to the employment of its staff. It includes employment expenses which are benefits (for example, mileage and travel expenses) but it does not include payments made in respect of office expenses reimbursed to employees or the costs of engaging agency staff or consultants (these expenses form part of the amount shown in Line 6). Where the authority makes deductions for PAYE and National Insurance, and pays employer’s contributions for NI and pensions, then staff costs should include payments to HM Revenue and Customs and any pension contributions.
    20. Line 5: Loan interest/capital repayments

    21. This cell shows the total of capital and interest payments made by the authority in the year. It includes repayment of loan principal, whether as part of a scheduled repayment plan or as a special payment, and interest arising from any borrowing including bank overdrafts and credit cards.
    22. Authorities preparing income and expenditure accounts need to make a provision in their accounts for any accrued interest payable at the year-end in accordance with the terms of any loan. The accrued value of unpaid interest due would be shown in this cell.
    23. Line 6: All other payments

    24. This cell shows the authority’s total expenditure or payments made in the year, less the total of the specific expenditure amounts shown in Lines 4 and 5. It will include the costs of purchasing fixed assets and undertaking capital projects as well as the costs of providing day to day services. Payments made in respect of investments need to be included, but not entries that result from daily cash management activities, such as transfers between bank current and deposit accounts or the making of short-term investments – see 2.14 above.

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      Line 7: Balances carried forward

    26. This cell shows the closing figure for the balances of the authority after all of its financial transactions have been accounted for. The cell value is calculated by adding the amounts in Lines 2 and 3 to the balances brought forward in Line 1 and then deducting the sum of the amounts in Lines 4, 5 and 6.
    27. Line 8: Total value of cash and short-term investments

    28. This cell shows the actual value of the authority’s cash and short-term investments in the form of cash held, current and deposit accounts plus any short-term investments. The figure should be equal to the corresponding figure in the authority’s cash book.
    29. Short-term investments, which mainly include deposit and savings accounts typically provided by banks, are those that display the following characteristics:
      • are denominated in pounds Sterling;
      • have a maturity of 12 months or less;
      • the whole of the original sum invested can, from the time that the investment is made, be accessed for use by the authority without any reduction; and
      • the authority has assessed the counterparty and is satisfied that the original sum invested is not subject to unreasonable risk.
    30. For authorities preparing accounts on a receipts and payments basis, the figure in Cell 8 will be the same that shown at Cell 7. For other authorities a statement needs to be prepared explaining the difference by reference to the adjustments that have been made to convert the accounts to an income and expenditure basis, particularly accounting for debtors, creditors and provisions. Further information and examples on converting accounts from receipts and payments to income and expenditure are provided in Section 5.
    31. The authority will need to reconcile this figure to its year-end bank account statements and submit the reconciliation to the external auditor. Further information on bank reconciliations can be found in Section 5.

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      Line 9: Total fixed assets plus long-term investments and assets

    33. This cell shows the value of all the long-term assets the authority owns. It is made up of its fixed assets and long-term investments. The term fixed assets means the property, plant and equipment used by the authority to deliver its services. A long-term investment arises where the authority invests money in anything other than a short- term investment.
    34. Authorities need to maintain a register of the fixed assets, long-term investments and other non-current assets that they hold.
    35. The value of the cell at Line 9 is taken from the authority’s asset register which is up to date at 31 March and includes all capital acquisition and disposal transactions recorded in the cash-book during the year. Authorities need to apply a reasonable approach to asset valuation which is consistent from year to year. Where an authority changes its method of asset valuation during a financial year, it will need to restate the prior year’s figure in Line 9 of the annual return.
    36. Further information on fixed assets and long-term investments can be found in Section 5.
    37. Line 10: Total borrowings

    38. This cell shows the outstanding capital balance of all borrowings from third parties at the end of the year, including all loans but excluding bank overdrafts. Authorities need to maintain a record of all borrowings and similar credit arrangements entered into, other than temporary bank overdrafts. Further information can be found in Section 5.
    39. Line 11: Disclosure note re Trust funds (local councils only)

    40. This cell requires a local council only to answer ‘yes’ or ‘no’ to whether it acts as sole trustee for, and is responsible for managing, Trust funds or assets. The council needs to ensure that the accounting statements in Section 2 of the annual return do not include any Trust transactions or balances (see paragraph 1.41 above).

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      Signature of Responsible Finance Officer

    42. Notwithstanding who prepared the statement of accounts, it is the responsibility of the authority’s RFO to certify it as either presenting fairly the financial position of the authority or properly presenting its receipts and payments, as the case may be. In so certifying the RFO confirms that proper practices have been followed in preparing the statement of accounts.
    43. Signature of Chairman

    44. After the RFO has signed the statement of accounts, the members of the authority meeting as a whole need to consider it and approve it by resolution. Alongside the RFO’s certificate, the person presiding at the meeting at which the statement of accounts is approved needs to confirm, by signing and dating the statement at the bottom of Section 2 of the annual return, that the accounts have been approved by the authority in accordance with the Accounts and Audit Regulations 2015.
    45. The authority needs to ensure that the accounting statements are signed by the RFO and approved by the authority, by the latest date in order for the RFO to comply with the duty to commence the period for the exercise of public rights so that it includes the first ten working days of July.
    46. Accompanying information

    47. There is no provision in the annual return for additional notes to explain and expand on the figures shown in the accounting statements. To address this, authorities need to provide the following accompanying information to the external auditor:
      Explanation of variances
    48. Authorities need to understand the changes in income and expenditure from year to year and their significance. The RFO needs to produce an explanation of significant variances in annual levels of income, expenditure and balances shown in Section 2 of the annual return that provides a sufficiently detailed and meaningful analysis and explanation of the reasons for the change.

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      Bank Reconciliation

    50. The year-end bank reconciliation (see paragraph 1.10 above) needs to be provided to the external auditor together with the annual return and other accompanying documentation.
    51. The external auditor may request that other information is provided to support their review of the annual return. The authority needs to comply with any such requests.
    52. Supporting information on completion of the accounting statements can be found in Section 5

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