2010/2011 Statement of Accounts CONTENTS Page 3 Foreword to the Accounts 12 Statement of Responsibilities for the Statement of Accounts 13 Independent Auditors’ Report to London Borough of Lambeth 16 Annual Governance Statement 36 Statement of Accounting Policies Main Financial Statements 49 Movement in Reserves Statement 54 Comprehensive Income and Expenditure Statement 56 Balance Sheet 58 Cash Flow Statement 59 Notes to the Accounts (General) 69 Notes to the Comprehensive Income and Expenditure Statement 88 Notes to the Balance Sheet 123 Notes to the Movement in Reserves Statement 139 Notes to the Cash Flow Statement Supplementary Financial Statements 141 Housing Revenue Account Income and Expenditure Account 141 Statement of Movement on the HRA Balance 142 Notes to the HRA 146 Collection Fund 147 Notes to the Collection Fund 149 Pension Fund 151 Notes to the Pension Fund 162 Glossary of Terms 2 FOREWORD TO THE ACCOUNTS This document sets out the London Borough of Lambeth’s Annual Accounts for the year 2010/11, prepared for the first time on an International Financial Reporting Standard (IFRS) basis. The financial position is regularly monitored and reviewed throughout the year and this Statement of Accounts brings together the financial results of all the Council’s operations for the year and its position as at 31 March 2011. The purpose of this foreword is to offer an easily understandable guide to the most significant matters reported in the accounts. It provides an explanation in overall terms of the Council’s financial position, and assists in the interpretation of the accounting statements. It also contains a commentary on the major influences affecting the Council’s income and expenditure and cash flow, and information on its financial needs and resources. It is not the purpose of the foreword to comment on the policies of the Council, rather to explain the financial facts. This foreword provides a guide to the Council’s accounts for the year ended 31 March 2011. The Accounts and Audit Regulations 2003 (as amended) require the Statement of Accounts to be approved by the Chief Finance Officer by 30 June 2011. In Lambeth that is the Executive Director of Finance and Resources, Mike Suarez. The accounts are set out on pages 49 to 161. This section consists of a technical explanation of accounting conventions used in the Statements followed by a practical description of the main conclusions to be drawn from the accounts. The statements have been prepared in accordance with proper accounting practices and all relevant statutory requirements. Proper accounting practices represent compliance with the following: The Local Government Act 2003 (as amended) All relevant International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs) and International Financial Reporting Interpretations Committee (IFRIC) and Standing Interpretations Committee (SIC) interpretations as adopted by the European Union. The Code of Practice on Local Authority Accounting in the UK 2010/11 issued by the CIPFA/LASAAC Joint Committee, a body recognised by the Accounting Standards Board (ASB) The Best Value Accounting Code of Practice 2010/11 (BVACOP issued by CIPFA) that establishes proper practice for consistent financial reporting below the Statement of Accounts level and has statutory recognition The Statement of Accounts comprises: The Statement of Responsibilities for the Statement of Accounts sets out the Council’s and the Chief Finance Officer’s responsibilities for the statement of accounts. It also carries the certification of the Chief Finance Officer. The Annual Governance Statement is not part of the accounts but is shown alongside them. The statement sets out the main components of internal control and the framework within which the Council’s internal control is managed and reviewed, including the arrangements for internal audit. It also reports on significant weaknesses and areas for improvement identified and the actions taken to rectify or strengthen these areas. The statement is signed by the Chief Executive and the Leader of the Council. Statement of Accounting Policies explains the basis for the recognition, measurement and disclosure of figures and events in the accounts and is intended to aid the reader’s understanding of the accounts. Core Financial Statements The Movement in Reserves Statement shows the movement in the year on the different reserves held by the Council, analysed into ‘usable reserves’ (those that can be applied to fund expenditure or to reduce Council Tax) and other reserves which represent technical accounting adjustments. The statement reconciles the Surplus or 3 (Deficit) on the Provision of Services to the General Fund and Housing Revenue Account balances which are used for council tax setting and dwellings rent setting purposes. The Surplus or (Deficit) on the Provision of Services line shows the true economic cost of providing the Council’s services, more details of which are shown in the Comprehensive Income and Expenditure Statement. These are different from the statutory amounts required to be charged to the General Fund Balance and the Housing Revenue Account for council tax setting and dwellings rent setting purposes. The Net Increase /Decrease before Transfers to Earmarked Reserves line shows the statutory General Fund Balance and Housing Revenue Account Balance before any discretionary transfers to or from earmarked reserves undertaken by the Council. The Comprehensive Income and Expenditure Statement shows the accounting cost in the year of providing services in accordance with generally accepted accounting practices, rather than the amount to be funded from taxation. Taxation is raised to cover expenditure in accordance with Council Tax regulations; this may be different from the accounting cost e.g. provision for capital debt repayment. The taxation position is shown in the Movement in Reserves Statement. The Balance Sheet is fundamental to the understanding of the Council's financial position as at 31 March 2011. It shows the balances and reserves at the Council’s disposal, its long-term indebtedness, the net assets employed in its operations, together with summarised information on the fixed assets held. It includes the Housing Revenue Account and the Council’s own share of the Collection Fund, but excludes the Pension Fund and Trust Funds. The Cash Flow Statement demonstrates the relationship between the total movements of the Council’s assets and liabilities during the financial year and cash received and paid in external transactions for revenue and capital purposes. The Notes to the Primary Statements of the Accounts provide a more detailed analysis of the entries in the Movement in Reserves Statement, the Comprehensive Income and Expenditure Account, the Balance Sheet and Cash Flow Statements. Supplementary Financial Statements The Council is required by law to account separately for the provision of Council housing. The Housing Revenue Account (HRA) shows the major elements of housing revenue expenditure; repairs and maintenance, administration and capital and financing costs and how the expenditure is financed from rents, grants and other income. The account is supported by the Statement of Movement on the HRA Balance, which reflects the items which should be included or excluded from the Income and Expenditure Account in order to arrive at the HRA balance which affects the level of rent set by the Council. The Collection Fund is a statutory statement relating to the collection of income received from Council Tax and business rates [known as National Non-Domestic Rates (NNDR)]. NNDR income is passed on to Central Government after allowing for the Council’s cost of collection. The Council Tax income is distributed between the Council and the Greater London Authority in accordance with their precept requirements at the time of setting the Council Tax. The Council’s share of income from the Collection Fund is shown in the Comprehensive Income and Expenditure Account. The Pension Fund accounts show the contributions to the Council’s Pension Fund, the benefits paid from it and the financial position as at 31 March 2011. The Council acts as trustee for the pension and trust funds, which are separate from all of the other accounts and are therefore not included in the Balance Sheet. Changes to the 2010/11 Statement of Accounts The Statement of Accounts for 2010/11, as stated, is the first to be prepared on an IFRS basis. Adoption of the IFRS-based Code has resulted in the restatement of various balances and transactions, with the result that some amounts presented in the financial statements are different from the equivalent figures presented in the Statement of Accounts for 2009/10. This has also necessitated the preparation of a third balance sheet showing the opening position of 2009/10. Further details are in the notes to the accounts. Furthermore the main financial statements have changed with the former Income and Expenditure Account and the Statement of Total Recognised Gains and Losses being combined in the new Comprehensive Income and 4 Expenditure Statement (CIES). The former Statement of Movement on the General Fund Balance and the Statement of Movement on the Housing Revenue Account Balance have been subsumed in the new Movement in Reserves Statement. There are now additional requirements regarding Segment Reporting: In the analysis of income and expenditure by service on the face of the CIES (as specified by the Best Value Accounting Code of Practice) the headings do not coincide with the Council’s internal organisation structure. As such reconciliations have been prepared between the CIES figures and the management reports on directorate performance to improve understanding. Details are in the notes to the accounts. The main areas of accounting change are: Grants and contributions for capital purposes: These have been recognised immediately as income in the CIES on receipt rather than being deferred and released to revenue to match depreciation as was previously the case. Leases: Property leases are classified and accounted for as separate leases of land and buildings.