Statement of Accounting Policies and Estimation Techniques

   

The accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in the UK 2004 - A Statement of Recommended Practice (SORP) issued by the Chartered Institute of Public Finance and Accountancy (CIPFA).These accounts are maintained on an historical cost basis, subject to the valuation and depreciation of certain categories of asset where values are based on current cost.

The County Council has established a number of provisions to meet liabilities which are expected to arise in future years but are of uncertain timing or amounts.

The insurance policies held by the County Council require a significant level of self insurance, the level of this being recommended by independent advisers.  The monies set aside for self insurance are split between a provision representing outstanding, unsettled claims at 31 March 2005 and a reserve to meet future claims.  

Details of these provisions are shown in note 18 to the balance sheet.

    a)Revenue

The General County Fund balance represents a working balance derived from past savings disclosed in the consolidated revenue account or budgeted contributions.  This balance incorporates both school balances, which as a result of legislation are retained by each individual school, and underspends on services that have been approved for carry forward to the following year.  

In addition a number of earmarked revenue reserves are maintained for future expenditure which fall outside the definition of a provision.

Details of these reserves are shown in note 20 to the balance sheet.

    b)Capital

In accordance with standard accounting practice for local authorities two non cash backed

Capital reserves exist as part of the system of capital accounting. These are:

This reserve represents the movement arising on the revaluation of fixed assets.

This reserve represents amounts set aside from revenue resources, and capital receipts to finance expenditure on fixed assets or for the repayment of external loans and certain other capital financing transactions.

All expenditure on the acquisition and/or improvement of land, buildings, roads, bridges, plant and major purchases of equipment is capitalised provided that these assets yield a benefit to the Authority for a period of more than one year.  However, some relatively minor items may be financed from revenue.

Fixed assets are valued on the basis recommended by the SORP and in accordance with the Statements of Asset Valuation Principles and Guidance Notes issued by the Royal Institute of Chartered Surveyors (RICS).

The basis of valuation of the various categories of assets is as follows:

Assets acquired under finance leases are reflected in the appropriate category of fixed asset, together with a deferred liability to pay future rentals.  In addition assets financed by a deferred purchase arrangement are similarly reflected in fixed assets, with the liability to the merchant bank included in long term borrowings.

Rentals payable under operating leases are charged directly to revenue account.

Deferred charges represent expenditure which may be properly capitalised but which does not represent tangible fixed assets. The County Council operates a policy of charging 100% of such expenditure to service revenue accounts.

Capital charges are made to all services in the consolidated revenue account, which utilise assets in the delivery of that service; this  comprises  two elements, depreciation and notional interest

Buildings are depreciated over their remaining useful economic lives as assessed by the property valuer, with no allowance for a residual value. No depreciation charge is made for the majority of land, community assets or assets under construction or refurbishment.

Where assets suffer impairment, then dependent upon the reason for that impairment, an accelerated depreciation charge may be made to the revenue account.

Where depreciation is provided for, assets are depreciated using the straight line method over the following periods:

Notional interest charges are applied to all assets in the balance sheet, and are based on asset valuations at the beginning of the financial year. The notional rate of interest for assets carried at current value is 3.5% (3.5% 2003/04) and for those carried at historical cost it is 4.8% (4.625% 2003/04).

Service revenue accounts are charged with actual rentals paid to leasing companies.

Interest payable on external debt, together with depreciation, is charged to the asset management revenue account, which is credited with the capital charges made to services.  The resultant balance is carried to the consolidated revenue account and thus the creation of these charges has a neutral impact on the overall expenditure of the Authority.

Proceeds from the sale of assets are credited to the usable capital receipts reserve. All such receipts are available to the authority to enhance its programme of capital expenditure or to reduce external borrowing. Receipts so used are transferred to the capital financing account. The extent to which receipts have not been utilised at year end are reflected in the balance sheet as capital receipts unapplied.

The County Council is unable to comply with FRS 3, as legislation on the use of capital receipts by local authorities does not permit gains or losses on the sale of fixed assets to be credited to the revenue account.

The revenue accounts of the County Council are maintained on an accruals basis. Thus, sums due to or amounts owing by the Council in respect of goods and services rendered but not paid for at 31March are included in the accounts. The exceptions to this policy are as follows:

a)Payments covering a period, e.g. fuel, telephone, rent, are brought into account in the year they become due and are not apportioned over the years to which they may relate.

b)Interest on staff car loans for the whole period of the loan is taken to the revenue account when the loan is granted.

c)Provisions for doubtful debts are maintained for certain categories of income by individual departments.

Government grants are accounted for on an accruals basis.  Income in respect of revenue grants has been credited to the appropriate service revenue account, whilst the majority of capital grants are credited to the government grants and contributions deferred account.   Amounts are then released from this account to a) offset any depreciation, calculated on the basis of average useful life, on assets financed from such resources, b) reflect expenditure incurred that does not increase asset values.

Stock accounts are normally only maintained for certain specified major items; other immaterial stocks, e.g. cleaning materials, books and stationery, are fully charged to revenue in the year of purchase.  Stocks are valued at cost price with allowance for obsolescent or slow moving stocks where material.  Work in progress is shown at cost price.

The revenue expenditure of the various services include a charge for all support services provided by the central departments of the Authority, other than the direct cost of councillors and their support and non distributed costs both of which are disclosed separately in the revenue account.

These charges are based upon various methods of allocation including staff time and volume of transactions. Office accommodation costs are based on floor areas occupied.

The County Council participates in two pension schemes for employees in particular services.  All the schemes provide members with defined benefits related to pay and service.  The schemes are as follows:

Note: In Leicestershire the Local Government Pension Scheme is administered by Leicestershire County Council and the Pension Fund accounts are included in this booklet on pages 52 to 64.

Accounting for this scheme follows that of a defined contribution scheme and thus there is no reflection of assets and liabilities in the County Council’s accounts.  The pension cost charged to the accounts is the contribution rate set by the TPA on the basis of a notional fund.

As a defined benefit scheme accounting arrangements follow the requirements of FRS17 on Retirement Benefits, which requires the disclosure of the estimated pension liability onto the balance sheet whilst charges to the revenue account are based upon the cost of benefits earned by employees in that year as assessed by an actuary. The extent to which this differs to employers contributions paid in accordance with statutory regulations is reflected by a transfer to or from a Pension Reserve to ensure that these accounting arrangements  do not impact on the levels of local taxation.

With effect from 2004/5 any new additional retirement benefits awarded to former employees within the local government pension scheme are subject to a one off payment from the revenue account to the pension fund. Actual cash payments being charged to the pension fund.

Disclosure note 24 to the Consolidated Balance Sheet provides further details.

In assessing liabilities for retirement benefits at 31 March 2004 for the 2003/04 Statement of Accounts, the actuary was required by the SORP to use a discount rate of 3.5% real (6.5% actual).  For the 2004/05 Statement of Accounts, a rate based on the current rate of return on a high-quality corporate bond of equivalent currency and term to scheme liabilities has been used.  The actuary has advised that a rate of 2.4% real (5.4% actual) is appropriate.  Application of this rate has resulted in an increase in liabilities of £125m, adjusted for by an increase in actuarial losses recognised for the year in the Statement of Total Movement on Reserves.

The authority continuously reviews existing external loans and interest rates being paid, and has the option of restructuring or refinancing this debt.

Premium or discounts arising from premature repayments of debt are charged to the revenue account over the period of the replacement debt; in the case of Lobo’s (Lender’s Option Borrower’s Option) this reflects the full term of such loans.

VAT incorporated in the revenue account is limited to irrecoverable sums.