Agenda item

Report of Director of Corporate Services (attached)

A representative of the Director of Corporate Services reported on the issues which impacted on the annual accounts process including changes to the Chartered Institute of Public Finance and Accountancy’s (CIPFA) Code of Practice for Local Government Accounts.  In presenting the report, he made particular reference to the statutes behind the preparations of the council’s accounts and the Chief Financial Officer’s and Audit Committee’s roles in approving the accounts.  He noted that the deadline for the approval of the final accounts had once more been extended to the end of November due to the ongoing pandemic.  He highlighted CIPFA’s ongoing work and consultation on changes to the Code of Practice to support the delivery of accounts that were more readily understood by users and the significant work required by officers in quantifying the impact of the changes to the accounting treatment of leases.

The review of accounting policies by officers, which had resulted in only minor changes to existing policies, was brought to members’ attention as was the requirement for additional polices in the preparation of the new group accounts to incorporate the accounts of the council’s new subsidiary company, North Somerset Environment Company Ltd (NSEC).

Particular reference was made to Appendix A of the report which explained the concepts of “true and fair” and “materiality”.  It was noted that the external auditor’s assessment of materiality for the council was set at 2% of gross revenue expenditure but certain items were material by nature even if they were below the level of materiality for the accounts.  These included items such as officer remuneration, members’ allowances and related party transactions.  Members’ attention was also drawn to Appendices B and C of the report which explained critical judgements in applying the council’s accounting policies and an explanation of significant accounting estimates and sources of estimation uncertainty.

It was explained that formal workshops would be set up between officers and members around discussion of the draft accounts and to support member scrutiny of them to enable feedback and challenge and more details of the uncertainties taken into account and the impact of them when preparing the accounts would be given.  Risk assessments would also be completed for the external auditors, and these would also be presented to the Audit Committee. 

Members asked questions and received clarification on the meaning of materiality; the materiality figure used and whether it was benchmarked with other local authorities or national guidelines issued for the level to be used; the impact of consolidating NSEC accounts into the group accounts and how the process would work; the impact of IFRS16 and whether there would be noticeable variations in the accounts with the resultant adjustments; the resource implications of the additional work due to NSEC and IFRS16 and the setting of the financial boundaries of the new company (NSEC).

Resolved: that the Audit Committee noted:

(1)      the developments in the CIPFA Code of Practice for Local Government Accounts, including:

i. that there are limited changes to the Code for the 2021/22,

ii. that significant work continues to be required to quantify the impact of the implementation of ‘IFRS16 – Leases’ in 2021/22 for implementation in the 2022/23 accounts

(2)      that officers expect to include group accounts, in addition to the North Somerset Council single entity accounts, in the 2021/22 financial statements, in order to reflect the material transactions undertaken by the council’s new subsidiary company, North Somerset Environment Company Ltd (NSEC)

(3)      that officers are proposing no significant changes to existing accounting policies in 2021/22 but will recognise additional policies to be applied in the preparation of the new group accounts in the draft financial statements.

(4)      the requirement for the council’s accounts to provide a ‘true and fair’ view of the council’s financial position and transactions, the concept of materiality, the initial assessment of materiality limits applied by officers in drawing up the accounts; and disclosures which, although not material due to their value, are considered material due to their nature.

(5)      officers’ initial assessment of the critical judgements made in applying the council’s accounting policies, and the major sources of estimation uncertainty identified in the preparation of the 2021/22 accounts.

The Chairman thanked officers for their ongoing work in clarifying and simplifying complex matters in both written and verbal reports.