Agenda item

Statement of Accounts 2019/20

To approve the Statement of Accounts for 2019/20.

Minutes:

The Interim Head of Finance presented the Statement of Accounts which required approval by the Committee. There had been some minor typographical amendments up until the afternoon of the meeting and it was confirmed that the Chair would be signing the most up to date version. There had been no material changes to the report.

 

Following a briefing received by members regarding the Statement of Accounts, a number of questions had been submitted to the Interim Head of Finance in advance of the Audit Committee. A presentation in response to the questions was given and the following summarises the key points:

 

Question 1. Investment Properties: Re-Classification in 2019/20

 

A total of £49.5m was reclassified from investments properties to other land and buildings.

 

Assets reclassified from Investment Property to Property Plant & Equipment (PPE). Their book values are shown below.

 

      Marketfield Way properties (£11.9m)

      Merstham Regeneration (£8.8m)

      Warwick Quadrant (£6.6m)

      Travelodge (£5.2m)

      Linden House (£2.7m)

      Madeira Walk, Sandpit (£2.2m)

      Town Hall (£2.0m);

      Reading Arch Road Properties (£1.5m)

      Park Farm (£1.0m)

      New Pond Farm (£0.7m)

      Holly Lane Farm (£0.5m); and

      Old Town Hall (£0.5m)

 

This followed a fundamental review of the reasons for holding the assets:

 

·         Investment Property – solely for purpose of generating income.

·         PPE – support delivery of broader corporate and service delivery objectives.

 

This was consistent with the CIPFA Code of Practice for Local Authority Accounting.

 

An extract from the Balance Sheet was shared to explain [agenda pack page 104].

 

Question 2. Marketfield Way Assets

 

It was appropriate to reduce the value of the portfolio of assets at Marketfield Way (Impairment of Marketfield Way Assets). This was a key area of change within the audited accounts compared to the original draft.

·         Head Lease on 18-44 High Street, the Pay & Display car park and some smaller property leases on the site.

·         Historic value in the accounts was £5.2m.

 

Work commenced on site in spring 2020

·         the properties were demolished, and the car park was under the footprint of the new development.

 

Significant new assets were being created as a result of development and this would create new assets in 2020/21 accounts.

·         at 31 March 2020 the project was at the demolition and preparatory works stage.

·         this resulted in a net ‘disposal’ in the Accounts.

 

Question 3. Comprehensive Income and Expenditure Statement (CIES) Movements 2018/19 to 2019/20

 

The Comprehensive Income and Expenditure Statement (CIES) reported a movement from a surplus on provision of services of £3.494m in 2018/19 to a surplus of £1.034m in 2019/20. The main reasons for this movement were:

 

·         Increase in Community Infrastructure Levy (CIL) receipts.

 

Offset by:

·         Property revaluations (Marketfield Way asset write-offs).

·         Increased depreciation charges.

·         This Council’s share of prior years’ Collection Fund deficits.

 

Reserve movements 2018/19 to 2019/20 were also referred to. The main reasons for the Usable Reserves increasing from £54.3m to £63.6m were:

 

·         Increase of £9.3m to reflect Community Infrastructure Levy (CIL) receipts during the year.

 

The main reasons for Unusable Reserves decreasing from £112.1m to £104.6m were:

·         Charge to Unusable Reserves to reflect the reduction in value of Marketfield Way assets (£5.2m).

·         Charge to Unusable Reserves to reflect this Council’s share of prior-year Collection Fund deficits (£1.8m).

 

Question 4. Credit Loss Calculations; and
Question 5. Company Loans - Impairment Basis

 

Note 22.3 – Financial Instruments [agenda pack page 132]

 

International Financial Reporting Standards IFRS9 – accounting treatment for Financial Instruments (including company loans) required the following to be taken into account:

 

·         Risk factors such as the COVID-19 pandemic - may lead to delays in loan repayment.

·         Charge against the value of assets (Financial Instruments) with the opposite entry to the Capital Adjustment Account, both in the Balance Sheet.

·         No direct impacts on the CIES.

·         No direct link to the separate Policy on Minimum Revenue Provision (MRP) for company loans in the Treasury Strategy.

 

The key loans and balances at the end of March 2020 that the Council had made were as follows:

 

Horley Business Park Development LLP

Loan/Accrued Interest £1.154m - impairment £200k

 

Greensand Holdings Ltd

Loans £13.258m - impairment £1.100m 

 

Question 6. Increase in NNDR Appeals

 

This question related to commentary in Deloitte’s ISA260 Report – Significant Risks [agenda pack page 35].

 

·         Requirement to make provision for this Council’s share of Business Rate payers’ appeals against rateable valuations.

·         Increase from £0.7m in 2018/19 to £2.5m in 2019/20.

·         2019/20 - premises-specific assessment prepared by the Council’s rating advisors.

·         More accurate than reliance on UK-wide rating appeal indices as in previous years - based on the risks associated with the specific types of businesses operating in the local area.

 

Question 7. Property Revaluations – exclusions

 

This question related to commentary in Deloitte’s ISA260 Report – Valuation of Property Assets [agenda pack page 36].

 

The exclusions were primarily parks and allotments

·         All other significant buildings and land assets had been revalued by the external valuer - either by a site visit or a desktop valuation.

 

Question 8. Comparison with the Outturn Reported to Executive in Summer 2020

 

The main reason for differences would be if changes were subsequently agreed during the audit of the Accounts which would not have been reflected in the Outturn report.

 

For 2019/20 these included:

 

·         Total Usable (Capital) Reserves decreased as a result of identifying that £2.5m of the Section 106 balances previously reported as being an asset of the Council were in fact payable to Surrey County Council. (It was noted that these funds would be used for the benefit of local residents). Moving forward that distinction would be made clear.

 

·         Total Unusable Reserves decreased by £5.2m as a result of writing-off the Marketfield Way assets.

 

The Interim Head of Finance was thanked for her clear explanation. There were no further questions.

 

The Chair understood that the Council’s MRP policy, within treasury management, stated that the Council did not make any MRP repayments in respect of loans lent to subsidiaries due to the expectation that the loan would be repaid in full at some point in the future, however, given that the loans had been impaired in the accounts, it was questioned whether the Treasury Management Policy should be reviewed in light of this.  They asked that this should be carried forward for discussion to a future Committee meeting, once treasury management was within the remit of this Committee.

 

RESOLVED that the Statement of Accounts 2019/20 be approved.

Supporting documents: