SUMMARY/PURPOSE

1. This report sets out an overview of Trading Operations in a Local Authority context, and the reporting requirements for Trading Operations which are set out in the Code of Practice on Local Authority Accounting in the UK: A Statement of Recommended Practice (SORP) and the Best Value Accounting Code of Practice (BVACOP).

BACKGROUND

2. The SORP’s requirements for trading accounts are not based on any specific accounting standard. Instead, they reflect considerations of stewardship specific to local authorities. Where an authority is trading and taking commercial risks, then there should be assurances that the authority is not exposing itself unreasonably to loss, and that any losses identified are in accordance with policy decisions of the Council. The note to the Consolidated Revenue Account encourages authorities to disclose the circumstances in which the authority is exposed to commercial loss and the financial consequences for the year of account.

3. Authorities are free to use their own discretion to determine which trading operations should be disclosed individually and which can be consolidated into summary figures. The overall objective is to present a fair summary to readers of the extent to which the authority is exposed to commercial risk and has achieved its trading objectives (or otherwise). For example, an authority might decide that it will identify individually all trading operations with a turnover above a certain figures, and aggregate the figures of other smaller trading operations.

4. The BVACOP identifies six main types of trading operation that may be run by local authorities. These range from direct trading services or undertakings with the public or other third parties (e.g. markets, industrial units), through compulsory competitive tendering arrangements and voluntary competitive tendering exercises, to support services provided in a free or limited internal market (e.g. support services provided to schools or other budget holders who have been given freedom to buy externally if they wish).

5. The BVACOP was established to modernise the system of local authority accounting and reporting to ensure it meets the changing needs of modern local government. It requires Total Cost to be used for reporting the cost of services in the Consolidated Revenue Account. The definition of Total Cost provides a consistent basis for all statutory financial disclosures in relation to Best Value, and enhances the reliability and comparability of such information.

6. Gross total cost includes all expenditure attributable to the service/activity, including employee costs, expenditure relating to premises and transport, supplies and services, third party payments, transfer payments, support services and capital charges. Specifically, the definition includes capital charges calculated in accordance with the SORP and with existing capital accounting guidance. Capital charges should include an annual provision for depreciation, where appropriate, plus a capital financing charge determined by applying a specified notional interest rate to the net amount at which the asset is valued in the balance sheet. No categories of income are considered to be abatements of expenditure and should be disclosed separately.

2005-06 STATEMENT OF ACCOUNTS - CONTENTS

7. The Council first published specific information on Trading Operations in its 2004/5 Statement of Accounts, including comparisons with the outturn position for each of the activities in 2003/4. These Trading Operations were selected in accordance with the six types of Trading Operation identified in the BVACOP and were reported on a voluntary basis without aggregation i.e. each type of Trading Operation was reported on a separate basis without the smaller operations being combined.

8. The Trading Operations identified to be reported in accordance with the requirements of the SORP and the BVACOP were Industrial Units, Markets, Cowes Ferry, Car Parks, School Buy-Backs (Support Services), Legal Services, Bereavement Services, Harbours and Coastal, Leisure Facilities and Seasonal Sites. Reporting of these Trading Operations has been continued in the 2005/6 Statement of Accounts to ensure consistency of treatment in the accounts and to allow a pattern of trading results to be established.

CONSULTATION PROCESS

9. No specific consultation process has been undertaken in preparing this report.

FINANCIAL AND LEGAL IMPLICATIONS

10. There are no significant financial or legal implications of this report, given that it is a report providing background information with regard to the reporting requirements for Trading Operations in a local authority context. Members are reminded that the Accounts and Audit Regulations 2003 require the Statement of Accounts to be prepared in accordance with proper practices. For these purposes proper practices are defined as compliance with the reporting requirements of the SORP and BVACOP.

OPTIONS

a) To note the content of the report with regard to providing background to the reporting requirements for Trading Operations prior to considering other reports on the agenda related to the operation of specific trading activities of the Council.

RECOMMENDATIONS

11. Option a.

BACKGROUND PAPERS

Accounts and Audit Regulations 2003

CIPFA Code of Practice on Local Authority Accounting

CIPFA Best Value Accounting Code of Practice

ADDITIONAL INFORMATION

None

APPENDICES ATTACHED

None

Contact Point : Stuart Fraser, ( 823657, email: [email protected]

STUART FRASER

Programme Lead – Financial Management