Statement of Accounting Policies

1 General principles

The accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in United Kingdom: A Statement of Recommended Practice (2003) (SORP) and the Accounts and Audit Regulations 2003. Any significant non-compliance is explained in the following notes.

2 Debtors and creditors

Sums due to, or from, the Council during the year are included in the accounts, whether or not the cash has actually been received or paid in the year - that is, on an accruals, or income and expenditure basis.

However, there are some exceptions, as follows:

· Overtime is accounted for with the basic pay with which it is paid. The total amount involved at 31 March 2004 is estimated at £3.4m (£2.5m in 2002/03)

· electricity and other utility companies' quarterly payments are accounted for at the date of meter reading rather than being shared between financial years

· income of the Pension Fund includes dividends declared in the income tax year.

The above exceptions apply every year so they do not have a material effect on the year's accounts.

Statement of Accounting Policies continued

3 Reserves and provisions

Variations to earmarked reserves are shown in the notes to the Consolidated Revenue Account. Expenditure on items for which the reserves were originally created is shown as service expenditure, with a corresponding contribution from the reserves to the Consolidated Revenue Account.

The main reserves are as follows:

· the Consolidated Revenue Account balance is the surplus of revenue income over expenditure. It can be used to supplement income in future years. In the balance sheet it is shown separately from reserves that are earmarked for specific purposes

· the Schools Reserve is the cumulative unspent portion of schools' locally administered budgets. These were set up under the Local Management in Schools arrangements required by the Education Reform Act 1988

· the Capital Reserve is used to help pay for future years' capital payments on services covered by Basic Credit Approvals from the Government

· the Invest-to-Save Reserve is used to finance future capital and revenue investment in initiatives that are expected to generate a payback which can be recycled into the Reserve

· the Designated Underspending Reserve enables services to carry forward underspendings to aid their budgets in future years

· the surplus from on-street car parking charges is held as a reserve to be used in accordance with Section 55 of the Road Traffic Regulation Act 1984

· the Insurance Reserve is maintained in case the settlement of claims for past liabilities is higher than expected (including the continuing liability to meet claims in respect of former County Council services in Southampton and Portsmouth incurred before 31 March 1997)

· the Trading Account Reserve contains the unapplied surpluses of trading units, which are retained to finance future investment in the trading units, to cover possible future losses or to provide direct benefits to customers

· The Delayed Hospital Discharge Reserve was used to support action by Social Services required to reduce delayed hospital discharges.


· The Grant Equalisation Reserve will be used to mitigate the effect on Council tax payers of the shift in revenue support grant away from the authority over a three-year period which started in 2003/04

· The Job Evaluation Implementation Reserve will help to meet the transitional costs of re-structuring the County Council's pay scales caused by the national single status agreement

Statement of Accounting Policies continued

· provisions represent legal liabilities, where the amount or date of payment is uncertain. They are charged to the revenue account in the year they are recognised.

4 Fixed assets

All spending on a fixed asset, which yields benefits for a period of more than one year, is treated as capital expenditure in the accounts.

Fixed assets are valued on the basis recommended by the Chartered Institute of Public Finance and Accountancy (CIPFA) and in accordance with the Statements of Asset Valuation Principles and Guidance Notes issued by the Royal Institution of Chartered Surveyors. Fixed assets are classified into the groupings defined in the Code of Practice on Local Authority Accounting:

· land, property and other assets used for service provision are called `operational assets'. They are included in the balance sheet at the open market value for their present use when there is enough evidence to support the value, or at depreciated replacement cost otherwise

· assets not used to provide services are called `non-operational assets' and include investment properties and assets that are surplus to requirements. They are included in the balance sheet at open market value

· infrastructure assets (e.g. roads) and community assets (e.g. country parks) are included in the balance sheet at historical cost net of depreciation. For this purpose, historical cost is taken to be the debt outstanding on the assets on 1 April 1994 plus expenditure since then. Vehicles and equipment are also valued at depreciated historic cost.

Surpluses arising on the initial valuation of fixed assets have been credited to the Fixed Asset Restatement Reserve. Subsequent revaluations of fixed assets are undertaken on a five-year rolling programme.

Material changes to asset valuations will be adjusted in the interim as they occur. Capital expenditure that increases the value of assets is added to the capital values of the assets pending revaluation.

Income from the disposal of fixed assets is accounted for in the year in which it occurs and is used to finance capital payments in the year.

Statement of Accounting Policies continued

5 Basis of charges for use of fixed assets

Notional interest charges are based on asset valuations at the start of the financial year. The interest rate used is prescribed by the Chartered Institute of Public Finance and Accountancy (CIPFA)/Local Authority (Scotland) Accounts Advisory Committee (LASAAC) Joint Committee. In 2003/04 an interest rate of 3.5% was used for assets carried at current value and for assets carried at historical cost, that is infrastructure and community assets, the rate applied was 4.625%

Depreciation charges are made on all fixed assets other than land and non-operational assets in accordance with Financial Reporting Standard (FRS) 15. The depreciation is calculated on a straight-line basis over each asset's useful economic life as follows:

· Buildings - are mostly depreciated over 57 years provisionally assessed when FRS15 was introduced in 2000/01 but when buildings are revalued their lives are reassessed to reflect the average useful economic life of the components of the buildings as follows:

- traditional building structure 60 years

- industrial type structures 50 years

- system build and timber frame 35 years

- temporary buildings 30 years

· Roads and bridges - reflect an assessment of the useful economic lives of different parts of road structures.

New and improved highways

- major schemes 50 years - minor schemes 40 years

Structural maintenance

- principal roads 20 years - non-principal 50 years

Area strategies and improvements for safety 25 years

Pedestrian facilities, street lighting and cycling facilities 20 years

Traffic calming 10 years

· Furniture and equipment 10 years

· Vehicles between 5 and 10 years

6 Deferred charges

Deferred charges are payments, which are capitalised, on the grounds that they provide long-term benefits but do not involve the creation of a tangible fixed asset. They include grants to external organisations, capital payments on foundation schools and in previous years some of the costs of local government reorganisation. The Council's policy is to fully write down deferred charges in the year in which they are incurred unless some lasting benefit to the Council itself can be shown.

7 Redemption of debt

The Council's borrowing limit for capital purposes is based on the cumulative amount of capital expenditure it has incurred and for which it has received borrowing approval from the Government. The borrowing limit increases each year by the amount of that year's capital approvals and reduces by the amount of that year's minimum revenue provision. The Council makes provision for the redemption of debt in accordance with the requirement that a minimum revenue provision be set aside from revenue. This must be at least equal to 4% of the borrowing limit for capital purposes at the start of each financial year.

8 Basis of valuation - investments

Investments are shown in the Consolidated Balance Sheet at cost. Investments in the Pension Fund Balance Sheet are shown at market value at 31 March 2004.

9 Central support services

Costs of support services are allocated over all services as follows:

· Office accommodation - on the basis of area occupied

· Central departments - on the basis of time spent on behalf of other departments, or in accordance with a basis of allocation contained in a service level agreement.

Statement of Accounting Policies continued

10 Stocks and stores

Stocks worth £1.8m are included in the Consolidated Balance Sheet. There are various bases of valuation for these stocks, according to their differing natures and purposes. For example, County Supplies stock of £1.0m is valued at latest buying price. The rest are mainly on an historical cost basis. Spending on consumable items is accounted for in the year of purchase.

11 Pension arrangements

The County Council participates in two pension schemes that meet the needs of employees in particular services. Both schemes provide members with defined benefits related to pay and service. The costs of providing pensions for employees are charged to the accounts in accordance with financial Reporting Standard (FRS) 17. This is a change from previous years and is explained further in paragraph 15 below.

12 Specific Government grants

Government grants for specific purposes are included in the accounts on the basis of the relevant percentage of eligible expenditure. These grants are shown in a separate column in the Consolidated Revenue Account.

13 Capital grants and contributions

The Code of Practice provides for capital grants and contributions to be credited, initially, to a government grant's deferred account. Amounts are released to revenue to offset the charges for depreciation on the related assets. The amount of each year's capital grants and contributions is released to revenue over the life of the assets.

14 Leasing

The Council, on occasions, uses operating leases to acquire vehicles or equipment as an alternative to capital financing. The rentals on the leases are charged to the revenue account of the service that uses the assets.

15 Changes

The implementation of FRS17 (the new accounting standard covering retirement benefits) has had a material effect on the presentation of the statement of accounts. The previous policy was to recognise liabilities in relation to retirement benefits only when the employer's contributions became payable to the pension fund or payments fell due to the pensioners for which the County Council is directly responsible, that is compensatory added years and early retirement costs of teachers and non-teaching staff. The new policy better reflects the current service cost accrued in the year by existing employees in the revenue account and the net pensions liability in the balance sheet. The change has had the following effects on the results of the prior and current periods:

· The overall amount to be met from Government grants and council tax has remained unchanged, but the costs disclosed for individual services are 0.06% lower after the replacement of employer's contributions by current and past service costs and Net Operating Expenditure is 2.44% higher than it would otherwise have been.

· The requirement to recognise the net pensions liability in the balance sheet has reduced the reported net worth of the Council by 21.6%.