Statement of Accounts 2011/2012 - Blackburn with Darwen Borough ...

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NOTES TO THE FINANCIAL STATEMENTS Income, expense, gains and losses on financial instruments are as follows: 2010/11 2011/12 £000 £000 Financial Liabilities at amortised cost Financial Assets - loans and receivables Total Financial Liabilities at amortised cost Financial Assets - loans and receivables 6,476 0 6,476 Interest expense (1) 8,027 0 8,027 6,476 0 6,476 Total Total expense in Surplus or Deficit on Provision of Services 8,027 0 8,027 0 ( 1,753 ) ( 1,753 ) Interest income (2) 0 ( 1,665 ) ( 1,665 ) 0 ( 399 ) ( 399 ) Gains on de-recognition (3) 0 0 0 0 ( 2,152 ) ( 2,152 ) Total income in Surplus or Deficit on Provision of Services 0 ( 1,665 ) ( 1,655 ) 6,476 ( 2,152 ) 4,324 Net gain/loss for the year 8,027 ( 1,665 ) 6,362 1. From 2011/12 includes interest elements regarding the recognition of school buildings acquired under Building Schools for the Future PFI arrangements. 2. Primarily made up of interest elements of finance lease for the Mall 3. Final cash payment on winding up of Intack Services Limited Fair value of financial assets and liabilities For each class of financial assets and liabilities, the Council is required to disclose the “fair value” of that class of assets and liabilities in a way that permits it to be compared with its carrying amount within the Balance Sheet. The “fair value” can be assessed by calculating the present value of the cash flows that will take place over their remaining terms. For Creditors and Debtors, and for short term Cash positions, the carrying value is accepted to be a reasonable approximation of fair value. For Borrowings and Investments, a separate assessment of fair value has been undertaken. For the Investment element within Loans and Receivables, fair values have been prepared by the Council’s treasury advisors, but there is no material difference between the fair value and the carrying value (i.e. the value at which the investments are shown in the balance sheet) primarily because of the relatively short duration to maturity of those investments. For Financial Assets, therefore, there is no material difference between their carrying value in the accounts, as set out above, and their fair value. For Financial Liabilities, there are material differences, and these are summarised in the table below. 31 March 2011 31 March 2012 Carrying Fair Value Carrying Fair Value Value Value £000 £000 £000 £000 88,787 97,666 PWLB loans 101,993 127,707 24,399 29,572 Market loans (with call options) 24,398 34,053 427 338 Other stock 427 397 113,613 127,576 Total Borrowings 126,818 162,157 0 0 PFI liabilities 27,086 27,086 18,335 18,335 Creditors 17,810 17,810 131,948 145,911 Total Financial Liabilities at Amortised Cost 171,714 207,053 - - 74 - -
NOTES TO THE FINANCIAL STATEMENTS In the case of PWLB loans, fair values were provided by the PWLB, using premature repayment rates. For Market Loans, fair values have been prepared by the Council’s treasury advisors, relating to PWLB loan repayment rates, discounted in line with in-year experience. This gives an indicative exit price (rather than an indicative purchase price) and is more consistent with the PWLB’s own methodology for advising fair values. It should be noted that the carrying values in respect of a number of market loans with “stepped” (initially lower) interest rates have already been amended (see Note 1- accounting policy i) ). In the case of other stock, fair values have been prepared by the Council’s Treasury advisors in respect of the only material element, an issue of irredeemable stock, on the basis of the discount rate for undated gilts. The overall fair value of the Council’s debt is higher than the carrying value because, predominantly, the debt held is at interest rates higher then the rates that were available for comparable debt at the balance sheet date. This increases the amount that the Council would have to pay if the lender requested or agreed to early repayment of the loans. 45 The nature and extent of risks arising from financial instruments The Council’s activities expose it to a variety of financial risks: • Credit risk – the risk that other parties may fail to pay amounts due to the Council. • Liquidity risk – the risk that the Council may not have funds available to meet commitments to make payments. • Market risk – the risk that financial loss may arise as a result of changes in financial markets, e.g. movements in interest rates. The Council’s risk management programme recognises these risks and seeks to minimise any potential adverse effects on the resources available to fund services. Risk management in relation to the finance function is carried out by a central Treasury Management Group, under policies approved as part of the Council’s Annual Treasury Management Strategy. Credit risk Credit risk arises from deposits made with financial institutions, as well as credit exposure to the Council’s customers. The safeguarding of the Council’s investments is the main priority of the Council’s Investment Strategy, which is established before the start of each year, alongside the setting of the Council’s annual budget. This sets fixed limits as to the duration of loans and amounts invested, using annually reviewed criteria, based on independently monitored credit rating scores for financial institutions. This lending list is reviewed frequently in line with the latest information from the Council’s treasury advisors. The highest value and longest dated investments are only made in very highly rated institutions. Limits were applied to investments in foreign-domiciled banks, and to overall balances in the building society sector. Working within the established criteria, the categories of investment made and key limits relating to them were (a) AAA rated money market funds – instant access – upper limit £5 million per fund, (b) credit rated banks and building societies – limits in three bands, ranging from minimum short-rating F1 (limits £3 million and 3 months) to minimum long-rating AA (limits £5 million and 364 days), (c) unrated building societies with minimum asset size £500 million (maximum £1 million and 3 months), (d) deposits with other local authorities (limits £4 million and 364 days), (e) deposits with the Government’s Debt Management Office (no limits). Separate criteria applied to longer term investments (over one year), but no long term investments were made during the year. The Council has not suffered any loss due to default by financial institutions, and has controls in place to minimise the risk of default in future. For example, lending limits are utilised to limit the extent of any loss, should a default take place. In response to market conditions, the Council has continued to limit the amount of borrowing undertaken, thereby reducing the potential credit risk arising from placing deposits. An assessment was undertaken, by the Council’s treasury advisors, of the value of the Council’s exposure to credit risk on its investment portfolio, based on credit rating agency determinations of historical exposure to risk by rating category and outstanding duration of debt. Even making an allowance for current market conditions, the value is not material. With regard to the Council’s interaction with its customers, where practicable, payments are sought by direct debit in order to minimise arrears and reduce credit risk. The Council considers the risk of exposure to non-payment and has made provision accordingly. - - 75 - -
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Statement of Accounts 2011/2012
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INDEPENDENT AUDITORS’ REPORT TO T
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FINANCIAL REPORT 2011/2012 1.0 Over
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FINANCIAL REPORT 2011/2012 it will
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FINANCIAL REPORT 2011/2012 Schools
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STATEMENT OF RESPONSIBILITIES 1.0 T
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COMPREHENSIVE INCOME AND EXPENDITUR
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CASH FLOW STATEMENT The Cash Flow S
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Statement of Accounts 2011/2012 - Blackburn with Darwen Borough ...

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