Agenda item

To approve the critical accounting judgements that will be used in completing the 2016/17 annual accounts and to note the key sources of estimation uncertainty. 

48.1           The report of the Head of Finance and Asset Management, circulated at Pages No. 63-71, set out the critical accounting judgements and key sources of estimation uncertainty that would be used in preparing the 2016/17 accounts.  Members were asked to approve the judgements and to note the key sources of estimation uncertainty.

48.2           The Finance Manager explained that the Council had to apply its accounting policies in order to produce the annual Statement of Accounts.  In applying those policies, certain judgements had to be made about complex transactions, or those involving uncertainty about future events.  There were quite a few compared to the previous year and the full list was attached at Appendix A to the report.  It was particularly noted that the Council had entered into several leases during the year which had been considered in detail to establish whether they should be classed as operating or finance leases.  The accounting code stated that the cost of redundancies needed to be recognised, and communicated to relevant staff when there was an expectation that future redundancies would be taking place.  A report in relation to an internal restructure had been taken to Council in February 2017 and a provision had been made for this potential cost within the accounts.  In terms of investments, e.g. the purchase of Challenge House and the land at Cascades, a judgement needed to be made as to their property class.

48.3           The Finance Manager advised that, in preparing the Statement of Accounts, there were areas where estimates were made.  This included the useful lives and valuations of properties, which were estimated by qualified valuers; the amount of arrears that would not be collected, which was estimated based on past experience of collection of different types of debt; and the liability for future pension payments, which was estimated by qualified actuaries.  These areas were set out in detail at Appendix B to the report, however, it was noted that the exact figures would not be known until the accounts had been completed.

48.4           In response to a Member query regarding accounting for assets and the way they were held, the Finance Manager explained that capital appreciation would be shown in the accounts.  If assets had gone up in value this would be shown as an unrestricted gain.  The Head of Finance and Asset Management advised that the Council was currently in the process of appointing an Investment Manager to work with Officers in respect of investing in new commercial properties and reporting on the existing portfolio.  It was intended that a quarterly report on performance would be shared with an internal board but it would also be possible to produce an annual report for Council which could include capital appreciation and rental yields.  A Member expressed the view that it would be difficult to value the land which had become vacant following the demolition of Cascades until the Council had decided what to use it for.  He pointed out that the use of greatest value to the community might not necessarily be the most financially rewarding.  The Finance Manager clarified that the valuers looked at the best use of the land and the highest value – the accounts were done purely from a financial point of view.

48.5           Having considered the information provided, it was

RESOLVED          That the critical accounting judgements that would be used in completing the 2016/17 annual accounts be APPROVED and the key sources of estimation uncertainty be NOTED.