A Best Value Approach to Trading Accounts - a Guidance Note for Local Authority Practitioners
Comments from ACCA
March 2003
The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to comment on A Best Value Approach to Trading Accounts - a Guidance Note for Local Authority Practitioners (the draft guidance). These comments have been prepared in consultation with members of the ACCA's Public Sector Technical Committee, a group of experienced accountants working in the public sector.
ACCA considers that it would be more appropriate for LASAAC to issue the draft guidance in its own name rather than in conjunction with CIPFA's Directors of Finance Section. This would provide the guidance with greater authority as LASAAC represents a wider spectrum of stakeholders rather than just the local authority directors of finance.
ACCA believes that the guidance should include clear indications of a financial de minimis level which should be used in determining the 'significance' of trading operations. We would suggest that the turnover of the trading operation would represent a relatively large part of the authority's gross revenue budget if it were to approach 5% or more of this figure. Reference could also be made to SAAP 25 which indicates that segmental reporting is appropriate if the segment consists of more than 10% of total turnover. We also believe that quantitative guidance figures should also be provided at other points in the draft guidance, for example in paragraph 11.2 on 'very large surpluses'.
We consider that the 'test of significance' criteria set out at paragraph 8.2 are appropriate. As indicated above, however, we consider that further guidance should be provided on the actual levels of significance including the level of surplus or deficit which would be considered to be a 'large proportion' of the turnover of the trading activity. In this case, we consider a figure of around 15% could be suggested. We also consider that, in the graphic in paragraph 8.2, the guidance should indicate at question three that the loss should be 'material' and the risk should be 'significant'. In addition, we consider that the final question should ask whether the financial results of the service are likely to be of interest to the public.
In paragraph 7.3, at line five we believe that 'the user has' should be
replaced by 'a significant number of users have'. This would make the guidance
clearer and ensure that a competitive environment was not considered to exist if
only a single user had exceptional discretion to use an alternative
supplier.
We suggest the following amendments to the table after paragraph 7.7:
- the requirements in the second, third and fourth lines should only apply
if such market testing has occurred in the last three
years
and
- on the last line, disclosure should be 'unlikely to be required' if the service has not been subject to any of the above.
We consider that the following wording (or similar) could usefully be added to the beginning of paragraph 7.9:
There may be significant costs involved in both the preparation and publication of trading accounts. In making the decision on whether or not such accounts should be produced or published, even if only in summary form as part of the authority's financial accounts, the authority should also consider the relative costs and benefits of such a course of action.
Section 9 of the draft guidance should be extended to indicate action which an authority could take if it believed it was likely to fail in its statutory duty for trading operations to break even.
In the model disclosure included in the draft guidance after paragraph 12.8, we consider that it would be helpful to provide the actual figures for the previous year in place of, or in addition to, the target figure for that year. The purpose of the penultimate paragraph is not clear as this merely repeats information contained earlier in the disclosure.