Contact: Nick Gibbins, ext 7544

1. Introduction

1.1 In previous years the draft Statement of Accounts has been approved by the County Council in September, but the Accounts and Audit Regulations 2003 require the approval of the Statement of Accounts to be progressively brought forward to 31 August this year, to 31 July next year and to the 30 June in 2006. In recognition that the timing of County Council meetings might not be conducive to meeting the revised statutory deadlines, the County Council in May 2004 delegated the power to approve the County Council's Statement of Accounts to this Panel.

1.2 A report on the Final Accounts for 2003/04 was submitted to the Cabinet in June and to the County Council in July. Since that report was prepared some very minor changes have occurred to the Final Accounts, so that the final underspending within the revenue account is £3,000 lower than forecast at £3.823m, but this reduction of £3000 in the revenue account balance at 31 March 2004 is offset by an increase of £2000 in earmarked reserves.

2. Statement of Accounts

2.1 The draft Statement of Accounts has been drawn up in the form prescribed in accordance with the 2003 Code of Practice on Local Authority Accounting in the United Kingdom, which constitutes `proper accounting practice' under the terms of Section 21 of the Local Government Act 2003. The code is updated each year to take into account changes in accounting standards. There are two major changes this year, relating to the incorporation of the new financial reporting standard on retirement benefits (FRS17) and the inclusion of a statement of internal control.

2.2 FRS17 adjustments are incorporated for the first time into the consolidated revenue account and balance sheet in 2003/04. In 2002/03 the effect of incorporating FRS17 was disclosed in the notes to the accounts but was not reflected in the accounting statements.

2.3 The fundamental principles of applying FRS17 to local authority accounts are:

· Balance sheet recognition of the assessed present value of future pension liabilities and the share of pension fund assets available to fund those liabilities

· A charge to the net cost of services based on the current service cost of pensions earned in the year and the value of unfunded liabilities arising from decisions during the year. This replaces the employer's contribution made to the pension fund and the cashflow associated with current and previous early retirement decisions. Net operating expenditure is also charged with the difference between the increase in the present value of pension liabilities and the expected return on pensions assets.

· The creation of a pensions reserve to match the pension net asset or liability and thus to ensure by means of a transfer to or from the reserve, that the impact of FRS17 on council tax is neutralized.

2.4 The scope of FRS17 within the County Council's accounts is confined to the Local Government Pension Scheme and to unfunded benefits paid to both teachers and local government staff arising from early retirement. Though the Teachers' Pension Scheme is also a defined benefit final salary scheme, it is not possible to identify the share of the future liabilities attributable to individual local authority employers, so that FRS17 adjustments are made at Whole of Government level.

2.5 The net pension liability at 31 March 2004 is £405.3m a reduction of £47.4m on the equivalent liability at 1 April 2003, as a result of improved investment returns in 2003/04. This liability is both long-term and volatile and employer contribution rates, which have been increasing on a stepped basis since the March 2001 valuation, will be set following the March 2004 valuation, with the objective of restoring full funding over the longer term.

2.6 The Accounts and Audit Regulations 2003 introduce a new requirement to conduct a review at least once a year of the effectiveness of the system of internal control and to include, with the statement of accounts, a statement of internal control, prepared in accordance with proper practices. This is based on the practice adopted in company accounts following the Turnbull Report. The County Council's statement is contained on pages 16 to 19 of the draft statement of accounts and has been signed by the Chief Executive and the Leader of the Council, following approval by the Standards Committee.

2.7 After final editing, the statement will be published once the external audit opinion has been obtained, which cannot be given in advance of member approval of the statements. The signature of the Chairman of the Panel is required by the regulations as evidence of approval of the Statement of Accounts.

Recommendation

That the Statement of Accounts 2003/04 be approved