Accounting and Reporting Developments An Auditor's Perspective

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Accounting and Reporting Developments An Auditor's Perspective


What am I covering today?

• Accounting developments • Sector developments• Recurring themes • CCG update• Audit Committee role on Governance


Accounting Developments

No major new accounting standards Exemption from applying IAS 27 no longer applies to NHS charities Modified absorption accounting Accounting arrangements for CCGs


IAS 27 Consolidated and separate financial statements

Controlled:

• power to govern

AND

• benefit from activities


Is it material?

• Size

• Nature

• Context

What could make a charity material from a qualitative point of view?


What would consolidation mean for you ?

• Although there are some technical issues to overcome on consolidation these are not expected to cause difficulties

• Finance Dept capacity is probably biggest threat• No change on single entity statements and trusts

will not be assessed on consolidated results• Audit Committee will need to review audit findings

report on results of charity


Absorption accounting

• Applies to Transfer of Functions within the NHS • For 2013/14 will affect

– residual transfers under Transforming Community Services

– transfers to provider trusts from PCTs – in year mergers

• Separate rules for CCGs


Absorption accounting

Absorption accounting Modified absorption accounting

Demised bodies 1 April 2013

Account for own transactions Adjustment to opening balances

No restatement of comparatives No restatement of comparatives

Net assets balanced by gain in SOCINet liabilities balanced by loss in SOCI

Net assets or liabilities balanced by adjustment to retained earnings

Recreate revaluation reserve Recreate revaluation reserve


Property, plant and equipment

• Transfer at existing book value

• Consider valuation and impairment on receipt

• Valuation 31 March 2014


NHSE Proposals for CCGs

• Disaggregation between CCGs not possible but Transfer Orders still remain valid– only PPE and related balances transfer– other balances (including continuing care

provisions) accounted for by NHSE• Clarification required for

– partially completed spells at year end – accounting from 1 April 2014


Sector Developments

Changes under Health and Social Care Act Maternity pathways


Maternity Services

• CCG pay in full for each pathway as it commences• Matters to resolve

– arrangements for patients being treated on 1 April 2013

– value of work still to be performed at year end• Accounting implications

– provider trusts? – CCGs?


Recurring Themes

Judgements and estimatesFinancial resilience and going concernAgreement of balances Income / expenditure recognition Remuneration disclosures


Critical judgments and estimates

Critical judgements Estimates

• Application of accounting policies

• Recognition of assets and liabilities

• Value at which transactions are recognised


Critical judgments and major estimates

Critical judgements Estimates

• going concern• classification of leases and PFI

schemes• timing of revenue recognition • identification of provisions• Whether to consolidate charity• impairment of assets

• asset valuations • asset lives• provision balances


Going concern and financial resilience

• Is the going concern basis appropriate? – do you have assurance over cash flows?– has support been confirmed where necessary?

• Are any material uncertainties adequately disclosed?


Evidence

• Short and medium term budgets

• Short and medium term cash flow forecasts

• Agreed contracts

• Recent reports from regulatory bodies


Agreement of balances

• Continues to be a difficult area • Establishing arrangements with CCGs• Treatment of legacy balances from PCTs• Is reporting consistent with your knowledge of

contract performance and disputes?• Do you understand reasons for material reported

differences?


Income / expenditure recognition

• Provider trusts recognise significant deferred income which isn't matched by commissioners

• Do you understand, and agree with, judgements taken in respect of – income recognition by providers– expenditure recognition by commissioners


Remuneration disclosures

• Remuneration Report disclosures continue to be a sensitive area

• Key areas – Senior Manager Pay – Pay Multiples – Severance Pay– Off payroll payments


CCG Update

Accounts Direction and Annual Reporting Guidance Working with Service OrganisationsGoverning Body


Accounts Direction and Annual Reporting Guidance

• Formal Accounts Direction required to confirm – relative status of Guidance against NHS MfA– approach to legacy balances

• No date announced for publication of the final Accounts Direction or ARG – very long with considerable duplication– sections on Annual Report and Governance are

confusing


Governance Statements for CCGs

• NHSE provide template format which covers 1 April 2013 to date accounts signed

• Key issues to consider – are processes adequately disclosed?– level of assurance? – significance of weaknesses?


When do you need a Service Organisation report?

• Determine whether you are dependent on controls operated by a third party

• Consider extent of reliance on – Commissioning Support Units (CSUs)– Shared Business Services (SBS)– Electronic Staff Records (ESR)


What should you do?

• Assess quality of assurance taking into account– controls operated by entity – whether identified controls are considered

appropriate – items highlighted in service organisation report– response by management to any such matters

• Consider implications for Governance Report• Consider external audit findings


Governing Body

• Have arrangements been made for Governing Body to approve the Annual Report and Accounts?

• What assurance are they seeking from Audit Committee?


Role of Audit Committees on final Annual Report and Accounts


What should you do now?

• How did it work last year? – any unpleasant surprises? – what would you want done differently?

• Do you understand key risks raised by auditors? • Have you been briefed on major risk areas?• Have you agreed timetable?


Final Audit Committee

• Are you happy with assurance over – Accounts – Quality Accounts– Governance Statement – Annual Report including Remuneration Report

• Are accounts consistent with in year expectations?

• Response to external auditors report and in particular response on "unadjusted audit errors"


Where do you get assurance over Governance?

• Service organisation reports (where applicable)• Head of internal audit • Board Assurance Framework• Clinical Audit • External audit progress reports• Accountable officer• Audit and other Committees

Documents

Accounting and Reporting Developments An Auditor's Perspective