To approve the accounting policies to be used during in the preparation of the 2018/19 financial statements.

9.1             The report of the Head of Finance and Asset Management, circulated at Pages No. 35-56, set out the main changes in accounting policies under the Code of Practice on Local Authority Accounting in the United Kingdom 2018/19.  Members were asked to approve the accounting policies to be used in the preparation of the 2018/19 financial statements.

9.2             The Finance Manager explained that preparation of the 2018/19 annual statement of accounts would commence the following week.  In order to do this, the Council had to review all of its accounting policies to ensure it complied with the Code.  Substantial changes to the accounting standards had taken effect from 1 April 2018 in relation to Revenue Recognition and Financial Instruments due to the adoption of International Financial Reporting Standard (IFRS) 15 – Revenue from Contracts with Customers, and IFRS 9 – Financial Instruments.  IFRS 15 was relatively minor for Tewkesbury Borough Council and related to changes in the way income was recognised; however, IFRS 9 was likely to have significantly more impact as it brought in a new way to classify financial instruments which looked at how they were accounted for and included potential future losses.  Currently, these did not impact on the general fund but this change would mean the value of the fund could fluctuate and this would affect the bottom line.  Whilst the Council would still need to account for it, the government had issued a statutory override for pooled funds for five years to avoid the impact on the general fund.  IFRS 9 also impacted on the way the Council held instruments but the main change related to forward-looking expected losses i.e. it would be necessary to undertake an assessment of what the Council could potentially lose for every instrument it held.  The Finance Manager reiterated this was the biggest change for quite some time and would require a lot of work.  In addition, it was noted that the Council had adopted the Community Infrastructure Levy (CIL) in October 2018, with charging commencing on 1 January 2019, so a policy was required to set out the proposed accounting treatment.  This was difficult as developers could pay in instalments but the full CIL liability was due at commencement of development, therefore, the full amount should be shown in the accounts at that date.

9.3             A Member found IFRS 9 very complicated and, with regard to the general fund, she questioned whether losses would be visible to the public.  The Finance Manager confirmed that the income and expenditure accounts would show profit and losses.  With regard to CIL, a Member questioned what happened if this money was not received, for instance, if the developer went out of business.  In response, the Finance Manager clarified that it was classed as a demand, which had more weight in law than a debt, and the Council would be seen as a preferred creditor should a developer go bankrupt.  The Head of Development Services confirmed that the CIL money was required regardless of whether a development was finished; should a developer go out of business, or a development change, there was a conversation to be had but the Council ultimately remained in control of that.  The Member queried at what point money was actually allocated to projects and was informed that the governance had not been determined; however, 15% of the total - or 25% if a Neighbourhood Development Plan was in place - was allocated to Parish Councils with the remainder going into the infrastructure pot.  CIL was similar to Section 106 in that there was often a lag in payment but it would be distributed on a percentage apportionment so the bulk of it would be determined by a mechanism which the Council would decide – this had not yet been decided by any of the Joint Core Strategy Councils and would be subject to a report to each of the authorities later in the year.  The Member raised concern that CIL had taken effect from January without any governance arrangements in place and the Head of Development Services provided assurance that the governance structure did not need to be set-up at the same time because, whilst CIL charges had been introduced in January, there was no money in the pot for the Council as development had not yet commenced on any of the sites.  A decision had been taken to implement CIL in order to start accruing money, had that not happened the Council could potentially have lost £85,000 per month.  Notwithstanding this, the governance structure for CIL was essential and she provided assurance that this would come forward later in the year.

9.4             Having considered the information provided, it was

RESOLVED          That the accounting policies to be used in the preparation of the 2018/19 financial statements be NOTED.