Agenda item

To consider the Head of Financial Services’ Report No. FIN1512 (copy attached) which seeks approval of the estimation techniques and accounting policies used in compiling the 2014/15 Statement of Accounts.

The Committee considered the Head of Financial Services’ Report No. FIN1512, which sought approval for changes in the estimation methods and the application of amended accounting policies to be used in the preparation of the Council’s Financial Statements for 2014/15.

The Council’s auditors (Ernst & Young) had identified as good practice the consideration of the assumptions made and methods used in the preparation of the Council’s financial statements. The Council’s accounts for 2014/15 contained estimated figures that were based on assumptions made by the Council about the future or that were otherwise uncertain. The determination of an accounting estimate could be simple or complex depending on the nature of the item. In more complex estimates there might be a high degree of specialist knowledge and judgement required. These estimates were made taking into account historical experience, current trends and other relevant factors. However, because balances could not be determined with certainty and actual results could be materially different from the assumptions made. The Council was required to disclose areas of estimation uncertainty where there was a significant risk of a material adjustment within the following financial year and these areas were identified in the Report, which also showed the effects if actual results differed from the assumptions made.

The Committee was advised that the area in the Council’s Balance Sheet at 31st March, 2015 where there was major uncertainty and where changes to existing estimation methods were required, was in relation to the cost of retirement benefits. As part of the terms and conditions of employment of officers, the Council made contributions towards the cost of post-employment benefits. Whilst the benefits (pensions) were not actually payable until employees retired, the Council had a commitment to make the payments. This figure was disclosed at the time that employees earned their future entitlement.

The Council’s future pension liability had been assessed by an independent firm of actuaries (Aon Hewitt Ltd) using various financial assumptions (rate of inflation, salary increases, duration of liabilities) and mortality assumptions (longevity of current and future pensioners). The Report set out the principal assumptions used by the actuary for 2015 in calculating the Council’s future pension liability and the implications of the changes in assumptions. The calculation of pension liabilities involved projecting future cash flows from the fund for many years into the future. This meant that the assumptions used could have a material impact upon the balance sheet position. The impact of changes on the net pensions was also set out in the Report. It was recognised that the Council minimised this risk by taking into account historical experience, current trends and other relevant factors in arriving at estimates which it believed reflected the most likely and accurate position.

In respect of the application of new accounting policies, the Committee was advised that there were no other amendments recommended to any of the accounting policies, which had previously been approved by the Committee.

RESOLVED: That

(i)            the Head of Financial Services’ Report No. FIN1512 be noted; and

(ii)           the change in estimation methods outlined in the Report be approved.