Friday, November 4, 2011

An answer as to why HDC accounts are late

I asked why HDC's annual accounts hadn't been approved by the deadline of 30th September 2011. Below is the response:

Thank you for your enquiry and I hope that the following information will provide an adequate explanation.

The reasons for the delay in publishing the Council’s final accounts for 2010/11 were reported to the Corporate Governance Panel at their September meeting and they were told that it was hoped that they could be completed in time for a meeting on the 2 November.

Members of the Panel were informed on 24 October that this would no longer be possible and the current intention is to submit them to the next programmed meeting of the Panel on the 7 December.

Three events led to this delay:

1) This is the first year of a new set of rules (International Financial Reporting Standards, IFRS) for the treatment of a range of items in the final accounts. These mainly relate to capital accounting including leasing and accounting for investment properties and are very much more complex than the previous regulations. They also require us to undertake some complex calculations to identify the appropriate treatment for each lease and retrospectively restate the Balance Sheets for March 2009 and March 2010 as well as providing the new figures for March 2011. It was appreciated that this would be more difficult but unfortunately we underestimated exactly how much more complex and time consuming it would be.

2) The Audit Commission decided that we must have new auditors this year. With hindsight, irrespective of any other problems, it was not a sound idea to change anyone’s auditor in this first IFRS year. It is only 5 years since we had our last change (Grant Thornton) and a very good knowledge of the authority and sound working relationships had been built up with them. We knew that we would have to explain our systems from scratch to the new auditors, PriceWaterhouseCoopers, but we did not anticipate the level of challenge on the treatment of various items that had been accepted by previous auditors. This should not be regarded as a criticism of the auditor’s work or approach but simply a reflection of the degree of thoroughness that can follow a change of auditors.

3) The Council needs to find financial savings and it was agreed that our capital accountant could take voluntary redundancy as long as he did not leave until mid-September, once the accounts should have been completed. Unfortunately, due to ill-health, he was not available during important stages of the final accounts preparation and audit before he left.

Whilst each event in isolation could probably have been coped with, the three, in combination, were too much for us. The rest of the accountancy team have worked very hard to try and overcome the problems but, without the detailed knowledge and experience of capital accounting, delay became unavoidable.

The expected changes affect the way that capital items are classified in the Balance Sheet but should not affect the Council’s revenue position and reserves. Whilst the audit is not yet complete the audit team has completed its work in many areas and expect this to be the case, though, until all the work is completed, they cannot formally confirm this.  There is therefore reasonable confidence that  the base revenue position that we are using for this year’s financial planning will prove to be robust.

It is clearly an important element of stewardship and good governance for the accounts to be completed to the official timescale and this will be referred to in the Auditor’s report to the Panel. It will also identify any problems they have identified and we will inform the Panel of the action that we will take to avoid a recurrence next year. This should not be too difficult because, once this first year on the IFRS basis is completed, the ongoing process becomes much more straightforward.

Each year there are a few Councils that run into difficulties with the time limits and it is expected that there will be more this year due to IFRS but it is important to stress that there is no evidence of any failures in the basic financial systems, simply the ability to overcome the various difficulties referred to in order to present the results in a timely fashion on the new basis.

Steve Couper
Head of Financial Services

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