2006 SORP   Guidance for 2006-07 Accounts

2006 SORP Guidance for 2006-07 Accounts PowerPoint PPT Presentation


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Seminar Objectives. Are you aware of the key changes that are required by the 2006 SORP?Do you understand the impact the 2006 SORP will have on the preparation of your 2006-07 Accounts and the ongoing impact for 2007-08?Do you know what the main challenges your Authority will face in meeting the

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2006 SORP Guidance for 2006-07 Accounts

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1. 2006 SORP – Guidance for 2006-07 Accounts Paul Spinks

2. Seminar Objectives Are you aware of the key changes that are required by the 2006 SORP? Do you understand the impact the 2006 SORP will have on the preparation of your 2006-07 Accounts and the ongoing impact for 2007-08? Do you know what the main challenges your Authority will face in meeting the requirements of the SORP?

4. Agenda What are main changes in the 2006 SORP? How will it affect financial statement presentation? A practitioner’s perspective on restating 2005-06 Accounts 2006-07 Issues

5. SORP 2006 and beyond Move to eliminate differences from UK GAAP whilst recognising statutory basis of accounts Remodelling the performance statements: Reordering presentation of accounts Capital accounting review Financial instruments Further changes on horizon under UK GAAP / IFRS harmonisation

6. What are the principal changes in 2006 SORP (1)? Changes effective for 2006-07 accounts Remodelling performance statements Order of accounts Capital financing charge and abolition of AMRA Profits and losses on disposal of assets Presentation of deferred premiums and discounts Format of Housing Revenue Account Group accounts and SIC Landfill Allowances

7. What are the principal changes in 2006 SORP (2)? Changes effective from 1 April 2007 (2007-08 accounts) as authorities needed more time to implement changes Introduction of Revaluation Reserve Capital Adjustment Account To replace Fixed Asset Restatement Account Capital Financing Account Authorities encouraged to make preparations now for changes to ledgers and fixed asset registers – further proposals in 2007 SORP but …………

8. Remodelling Performance CRA currently mixes reporting financial performance and accounting for application of Council Tax - Decision to separate GAAP compliant accounting from statutory adjustments Principal changes are to old CRA Income and expenditure account recording Net Operating Expenditure from CRA, plus Government grant and local taxation income omit appropriations to and from reserves include profit/loss on disposal of fixed assets Reconciliation to General Fund Movement Statement of total recognised gains and losses (replaces detailed note on movements on reserves – but still need reserves movement for balance sheet) Balance sheet and cash flow largely unchanged

9. Order of accounts Explanatory foreword Responsibility Statements SIC Accounting policies Core financial statements Notes to core financial statements Supplementary statements and associated notes Housing Revenue Account Collection Fund Group accounts and associated notes Glossary?

10. Capital Financing Charge and AMRA Do not charge Capital Financing Charge against net cost of services. N0no longer need for Asset management Revenue Account Depreciation and impairments now effectively charged direct to net cost of services Impact of depreciation still reversed out through MRP adjustment New line for interest charges Authorities can still use notional cost of capital charge for internal purposes to provide consistency in budget setting / project evaluation Cost of services Trading accounts Consultation on whether capital financing charge should be removed from SORP Arguments against – not UK GAAP; not understood Argument for – important part of total cost The capital financing charge has however become an intrinsic part of budget setting and budget monitoring at some authorities. There may be some authorities therefore that may wish to continue to include a capital financing charge in budgets and budget monitoring statements. Also, authorities may need to include the capital financing charge in the measurement of cost for some purposes. CIPFA will continue to issue guidance on the appropriate rates of interest to use for calculating capital charges, so that authorities that choose to do so can prepare their management accounts on this basis or use them for other purposes such as costing. The rates of interest to be used are notional and prescribed by CIPFA.  The following statement defines the interest rates that have been fixed for the financial year 2007/2008. Assets carried at current value For assets carried at current value the rate of interest to be applied in determining capital charges will be 3.5%. Assets carried at historical cost For assets carried at historical cost, that is infrastructure assets and community assets, the rate to be applied will be 4.15%. Consultation on whether capital financing charge should be removed from SORP Arguments against – not UK GAAP; not understood Argument for – important part of total cost The capital financing charge has however become an intrinsic part of budget setting and budget monitoring at some authorities. There may be some authorities therefore that may wish to continue to include a capital financing charge in budgets and budget monitoring statements. Also, authorities may need to include the capital financing charge in the measurement of cost for some purposes. CIPFA will continue to issue guidance on the appropriate rates of interest to use for calculating capital charges, so that authorities that choose to do so can prepare their management accounts on this basis or use them for other purposes such as costing. The rates of interest to be used are notional and prescribed by CIPFA.  The following statement defines the interest rates that have been fixed for the financial year 2007/2008. Assets carried at current value For assets carried at current value the rate of interest to be applied in determining capital charges will be 3.5%. Assets carried at historical cost For assets carried at historical cost, that is infrastructure assets and community assets, the rate to be applied will be 4.15%.

11. Restatement of 2005-06 figures Changes in SORP represent changes in accounting policies requiring PYA adjustment Prior year adjustments Removal of capital charges and AMRA Profit /loss on disposal of assets Government grants Representing other figures in 2005-06 accounts

12. Restating 2005-06 accounts Break even after charging MRP and making other statutory transfers Significant movement on I&E on restating 2005-06 accounts Leeds £150m deficit (from £1m surplus) Blackburn £12m deficit (from £3m) North Lincs…. More of this later Principal reasons for deficits Depreciation and impairments more than MRP Deferred charges Pooling housing receipts Deferred charges Profits / losses on disposal of assets FRS 17 entries Explain I&E deficits including use of Explanatory Foreword

13. Where can I get more information? CIPFA Guidance Notes due out 28 February CIPFA help desk Local practitioners groups Discuss with auditors

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