Annual Accounting Statement

The Annual Accounting Statements

The Annual Accounting Statement is a component part of the Annual Return and is the legal form of accounts for local councils. The Accounting Statements must be approved, by the Council meeting as a whole, as set out in Regulation 12.2 of the Accounts and Audit Regulations 2015. This can only be done after the approval of the Annual Governance Statement as set out in Regulation 6.4.

Councils should take care not to publish other formats of 'accounts' whether these are produced internally or by third parties and present these as the accounts of the Council.

Receipts and Payments and Income and Expenditure

Councils with total income or expenditure under £200,000 can report on either a Receipts and Payments basis, or an Income and Expenditure basis. Above £200,000 a Council must report under Income and Expenditure. The criteria for this is set out in Regulation 11.3 of the Accounts and Audit Regulations.

Under Receipts and Payments transactions are recorded when they are paid or received. So an invoice dated April, which is paid in May, is treated as a May transaction. Under Income and Expenditure transactions are recorded based on when they incurred, not when they are paid. So, in the above example, the transaction would be treated as an April transaction.

Under Receipts and Payments there are no debtors or creditors recorded at year end and the Councils cash in the bank [Box 8] will be the same as the Councils Reserves [Box 7]. Under Income and Expenditure there will, normally, be debtors and creditors outstanding at year end and these will agree to the difference between Box 7 and Box 8.

It should be noted that both years of the Accounting Statement (current and prior year) must be prepared on the same basis. If the Council moves from Receipts and Payments to Income and Expenditure it will be necessary to recalculate the prior year numbers, which can be a complicated exercise.

Box 1 - Balances brought forward

Box 1 is the simplest number to determine, as it will be the same number as stated in Box 7 the prior year.

Box 2 - Precept or Rates and Levies

Box 2 states the value of the precept for the year. This should only be the precept value and should exclude any grants that may be paid over by the billing authority. There can sometimes be confusion when the billing authority pays over an amount which equals the precept demand, but has included within it a grant element. This is technically wrong, as the billing authority should only raise a precept based on the demand issued to it, and by mixing it with a grant they are not doing this. However, if there is any grant element included ,this must be excluded from Box 2 and included within Box 3 (see below)

Box 3 - Total other receipts

Box 3 gives the total of all other Income received, excluding the Precept. Care should be taken here that funds received for a particular purpose, such as S106 funds or grants, are included in Box 3 and are not netted off against expenditure.

Box 4 - Staff Costs

Without doubt Box 4 gives the most problems for Councils. although the Practitioners Guide is clear on what should be included here. Staff Costs are employment costs - gross salary, pension costs and national insurance. Other costs which relate to staff, such as training, subscriptions etc, are not Staff Costs.

Costs of individuals who are not employees, such as locum clerks or agency staff, are not included within Box 4, nor are expenses reimbursed to staff (see also payroll section of this website).

The Council should ensure that the costs of all staff employed by the Council are recorded here, even if they may be funded from grants.

Box 5 - Loan interest/capital repayments

Box 5 includes the total payments in respect of loans. These normally only relate to PWLB loans, unless the Council has obtained permission to borrow from other sources..

The value recorded here is the total value paid, which includes both the Principle and Interest element.

Box 6 - All other payments

Box 6 is simply the total of costs which are not staff costs or loan payments. As with Box 3 these should be the gross costs and should not be netted off with any grants received.

Box 7 - Balances carried forward

This is the total of Box 1 + Box 2 + Box 3 - Box 4 - Box 5 - Box 6.

This value will be the year end value of the Councils reserves. Under Receipts and Payments this will not include the impact of any bills that have not been paid at year end, or any amounts due for the year which have not yet been received (for example the value of any VAT refund due).

Box 8 - Total value of cash and short term investments

The Box 8 value will be the value held in bank accounts, in cash, and in bonds with a maturity of less than 1 year. It will also include any money held with the Public Sector Deposit Fund. This value must be reconciled to the value stated in the Councils bank statements as at the 31st March.

Box 8 should not include the value of 'Investments' such as funds held with the CCLA Property Fund, or in shares.

Box 9 - Total fixed assets plus long term investments and assets

The value to be stated in Box 9 is, unfortunately, not as clearly defined as it could be. By far the simplest way to record assets is to record them at the acquisition cost and hold them at that value until disposal. Some Councils chose to value their assets on a different basis, sometimes at insurance value.

The use of an alternative value, other than cost, imposes a requirement that a value is determined for each asset and that this is reviewed on a regular basis. There may also be a requirement to restate prior year reported values on a regular basis.

As local councils very rarely hold fixed assets (other than Investments) for profit but as a means of providing services, there seems very little point in attempting to restate values on a regular basis. Councils who use alternative methods of valuation often create a great deal of work for no discernible benefit. From an audit perspective these valuation can also be very poorly calculated (they would not be acceptable in business accounts).

Our experience is that Councils who chose to use a valuation basis, other than cost, struggle to maintain their asset registers properly and generate a great deal of work in trying to do this.

Box 10 - Total borrowings

Normally local councils will only borrow from the Public Works Loan board. Thankfully the Debt Management Office issue year end statements by email and this is the value that should be used in Box 10.

Sometimes Councils can be confused because the difference on Box 10 from the prior year to the current year does not agree the value of payments stated in Box 5. The reason for this is that Box 5 includes both interest and principal, but the Box 10 value will only go down by the amount of principal repaid.