A BRIEF EXPLANATION OF THE ANNUAL REPORT AND ANNUAL ACCOUNTS FOR 2013/14 AND THE KEY ISSUES FOR THE TRUST
- Introduction
It is good practice to include an explanatory paper with theannual accounts submission to the Board for approval. This paper provides an interpretation of the accounts and highlights the key issues, to assist the Board’s understanding of the financial performancefor the year. A similar report will accompany the approved accounts when they are published, to help improve other readers’ understanding. This will be delivered through the Operating and Financial Review, whichis incorporated within the Trust’s Annual Report.
In writing this commentary, the purpose is to give the reader an easy tounderstand narrative supporting the Trust’s annual financial accounts for the year. This paper highlights significant messages in the accounts and linksthese to the key objectives and activities of the Trust for the year.
This report includes:
(i)Key financial information covering the year ended 31st March 2014.
(ii) An explanation of the content and structure of the Annual Accounts.
(iii) A brief explanation of the four main statements within the Annual Accounts,including key points.
(iv) A summary of the Certificates and documents which require signatures.(Appendix 1).
(v) The approval and submission procedure (Appendix 2).
- Key financial information covering the year ended 31st March 2014
In 2013-14 the Trust earned £96.826m income and had an overall deficit for the year of £4.683m excluding impairmentsand donated asset adjustments. This was an improvement of £0.267m on the Trust’s planned deficit of £4.950m.
The External Financing Limit (EFL) is a target on how the Trust must manage its cash flow and borrowing requirements. For 2013-14 the Trust has operated within its EFL set bythe Department of Health (DH) and has met this target.
The Capital Resource Limit (CRL) is the maximum amount that the Trust can invest in property, plant, equipment and intangible assets during the year.The Trust has operated within its Capital Resource Limit.
The Statement of Financial Position shows total assets employed of £62.733m, which includes a net revaluation of assets in year of £4.358m.
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- Content and Structure of the Annual Report and Annual Accounts
The Annual Accounts are produced in a standard format that is used throughout the NHS. They follow the accounting requirements of the NHS Trust Manual for Accounts which adopt International Financial Reporting Standards, to the extent that they are meaningful and appropriate to the NHS.
The DH is required to prepare its 2013-14 statutory accounts in accordance with HM Treasury directions. NHS bodies arerequired to follow the Financial Reporting Manual (FReM) guidance, except where a divergence has been formally agreedbetween the DH and Treasury.
The application of the principles contained in the Manual for Accounts depend on the individual circumstances of an NHS body and the accounting treatment is a matter between the NHS body and its external auditors.
For 2013-14, the major policy development is in respect of the consolidation of the returns of NHS Charitable Funds. This marks the end of a long-standing exemption from the FReM, whereby consolidation was not to be carried out by individual entities within the NHS Group. However, as per the Guidance for Consolidation of NHS Charity Accounts into NHS Local Accounts, Weston Health General Charitable Funds’ transactions are immaterial in the context of the group and transactions therefore have not been consolidated.
The Annual Report and Annual Accounts comprise:
- The Trust’s Annual Report for 2013/14
- The Remuneration report
- A statement of the Chief Executive and Directors’ responsibilities
- The auditors opinion on the accounts
- The Annual Governance Statement
- Four main statements:
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Taxpayers’ Equity
Statement of Cash Flows
●Notes to the accounts detailing how the accounts have been prepared
●Notes providing more detail and breakdown of the figures held in the earlier four main statements.
- Four Main Statements
Statement of Comprehensive Income for the Year ended 31st March 2014
This statement shows the total income and expenditure for the year and the surplus or deficit. It is a standard format with further details given in the supporting notes.
For 2013-14 the Trust had a retained deficit of£5,117,000, compared with the previous year’s retained surplus of£1,312,000.
The retained deficit of £5,117,000 includes the impairment charge of £385,000 and a £49,000 netadjustment as a result of the elimination of the donated asset reserve. As per the Department of Health guidance on break even duty for NHS Trusts thesetwo items are excluded when measuring a Trust’s breakevenperformance. Therefore, taking this into account, the Trust has improved upon its planned deficitof £4,950,000forthe year with an actual deficit of £4,683,000(£2,250,000 surplus for 2012/13).
The operating surplus shows the position after ‘normal’ activities and operations, and is before any ‘financing costs’ such as interest and dividends, but includes £385,000for the impairment chargerelating to the fall in value of the buildings. For full details see note 17 in the annual accounts.
The bottom part of the income statement shows other comprehensive income which is made up of all othergains and losses that are not recorded in the revenue section at the top. These items do not impact on theretained surplus or deficit and so do not impact on the breakeven duty. These figures can all be referenced to theStatement of Changes in Taxpayers’ Equity.
Within this section the net gain on revaluation of property, plant & equipmentof £4,358,000 reflects the 12.4% increase in value attributed to the Trust’s buildings as assessed by the Valuation office as at 31st March 2014.
Statement of Financial Position as at 31st March 2014
This statement shows the Trust’s total assets and total liabilities as at the 31st March 2014.
For 2013/14 the Trust has total assets employed of £62.733m, compared with the previous year of £58.388m. Theprincipal movement between headings is for Property, plant and equipment and revaluation reserve, primarilydue to the increasein valuation of property as assessed by the Valuation Office. This resulted in an increase in value of buildings by £4.6m, which was offset by impairments to Quantock £0.1m and Mendip of £0.1m in year. This wasfollowing the individual valuations by the Health Service District Valuation Service,when these assets were brought into useand resulted in£4.4mbeing charged to the revaluation reserve.
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The bottom half of the statement records the Trust taxpayers’ equity andreserves:
The Public Dividend Capital (PDC) of £62.983m represents the ‘public’ stake in the current and non-current assets of the Trust. The movement in year relates tofunding of £4,950k Public Dividend Capital (PDC) Revenue Support approved by Independent Trust Financing Facility Committee in October 2013. Also new PDC was received for capital projects of £126k for Order Communications system and £28k for Improving Birthing Environments.
The retained earnings show the Trust’s accumulated deficit since its inception in 1991.
The revaluation reserve of £12.591m represents the net increase in the value ofthe fixed assets since they were purchased or constructed.
Statement of Changes in Taxpayers’ Equity for the year ended 31st March 2014
This statement shows the movementin reserves in the period. It shows ingreater detail how taxpayers’ equity isused to finance the total assetsemployed and the changes between thecurrent and previous year.
Statement of Cash Flows for the year ended 31st March 2014
This statement shows all cash transactions during the year. The majority of cash items will go through the Statement of Comprehensive Income but some, for example capital expenditure, do not and are shown within this statement. Also the statement removes any non-cash transactions (i.e. movements in trade and otherpayables and receivables) to determine the actual cash flows in the year.
5.Notes to the accounts detailing how the accounts have been prepared.
Note 1 – Accounting policies – These set out the accounting rules that all NHS Trusts arerequired to follow. They explain the basis on which all entries in the accounts are made.The policies are largely dictated by the Department of Health’s Manual for Accounts,although the Trust is able to tailor the policies as it sees fit. One of the main requirementsis for the accounts to be reported on an accruals basis, which means that income andexpenditure are recorded in the year they arise, regardless of when the cash istransferred.
Note 1.5.1 - Critical judgements in applying accounting policies -The Trust has prepared the accounts on a going concern basis. The Directors have a reasonable expectation that the Trust has adequate resources to continue in operational existence for the foreseeable future. This is in the context of determining the future organisational form and during the transitional period it is assured that it will secure sufficient working capital with the agreement of the
NHS Trust Development Authority. For this reason the going concern basis has been adopted for preparing the accounts. The Trust has a planned deficit in 2014/15 of £4.95m and this requires £4.95m revenue PDC cash support from the Department of Health to maintain cash flow in 2014/15. Directors have received confirmation from the NHS TDA that it will support the Trust's application for cash support for 2014/15.
Note 10.6 – Pension costs – This note sets out the provisions of the NHS pension schemeand explains that it is accounted for as a defined contribution scheme. As a result, theTrust cannot disclose any share of pension assets or liabilities in its financial statements.
Note 11.1 – Better payment practice code- The Trust is expected to be able to payinvoices received within 30 days of receipt. A target of 95% compliance has been set bythe Department of Health. At the end of the financial year, the Trust had paid 95.5% of all non-NHS invoices against the Code. This compares with 96.6% non-NHS invoices in 2012/13.
Note 39 – Financial instruments – This note identifies the value of assets and liabilitiesarising from contracts. The definition of a financial instrument is ‘a contract that gives rise to a financial asset of one entity and a financial liability or
equity instrument of another entity’.Risks, such asthe impact of changes in the value of money, e.g. exchange rate shifts; of interest rates,for deposits and loans; liquidity or availability of cash are also disclosed here.
Note 40 – Events after the reporting period - This note identifies any significant eventsthat occur, after the end of the financial year, but before the accounts are signed off.These events are likely to have a significant impact on the future activities and financesof the Trust.
Note 41 – Related party transactions – The Trust is required to identify any significanttransactions that Board members, managers, or close members of their family haveundertaken with the Trust. As the Department of Health is seen as a related party, allNHS organisations with which the Trust has had significant transactions during the yearare also listed.
Note 42 – Losses and special payments – This note identifies financial costs that havebeen incurred, by the Trust, that are not planned and do not fall within the range ofactivities that Parliament would have intended healthcare funds to be used for. All of thecases recorded in this note have been reviewed and approved by the Audit and Assurance Committee.
Note 43.1 – Breakeven performance – This note shows the history of the Trust’s financialperformance from 2005-06 to 2013-14.
Note 43.3 – External financing – The Trust is given a cash limit for external financing, which enables the Department of Health to keep cash payments in the NHS overall,within the level agreed with Parliament. The annual limit is set by the DH and NHS Trust Development Authority,determining how much more, or less, the Trust can spend in addition to what funds itgenerates from its activities. The Trust delivered this requirement in 2013/14, reporting a£418kunder-utilisation of the planned limit.
Note 43.4 – Capital resource limit – This is the level of capital expenditure financed in theyear and is set by the Department of Health each year. The note shows that the Trust’scapital undershot the limit by £10k.
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John Hurley
Financial Controller
June 2014
APPENDIX 1
A SUMMARY OF THE CERTIFICATES AND DOCUMENTS THAT REQUIRE SIGNATURE AND BY WHOM:-
1.The annual accounts are made up of:
- TheChief Executive’s statement of responsibility as Accountable Officer – to be signed by the Chief Executive x 3 copies
- The Directors’ statements of responsibilities – to be signed by the Chief Executive and Finance Director x 3 copies
- The Auditors’ report – to be signed byGrant Thornton x 3 copies
- The Annual Governance Statement – to be signed by the Chief Executive x 3 copies
- Four primary statements (Statement of Comprehensive Income; Statement of Financial Position – to be signed by the Chief Executive x 3 copies; Statement of Changes in Taxpayers’ Equity and Cash Flow Statement), and
- Notes to the accounts
- The certificate relating to the summarisation schedules - to be signed by the Chief Executive and Finance Director x 2 copies
- The summarisation freetext - to be signed by the Finance Director x 2 copies
2.The letter of representation for the audit process of the Trust to be signed by the Chief Executive and Chair of Audit and Assurance Committee.
APPENDIX 2
Pre-audit
The fully completed but unaudited FMA file is required by middayon23 April2014by the FMA branch for electronic submissions. This file must be identical to the file submitted to the auditors.
On completion of audit, the auditor must be given a completed “Directors’ certificate for the FMA forms”. This effectively approves and authenticates the final version of the FMA forms. The certificate must be completed in non-black ink.
Post-audit
By midday 09 June 2014the auditor will submit by email to the FMA Branch at DH (certificates and other signed papers will be electronic copies):
The audited FMA forms (checked for consistency against audited accounts and without validation errors unless agreed with the DH) in the manner prescribed by DH Financial Information & Accounts.
Signed “free text sheets”.
Audit submission letter
Statement of Chief Executive’s responsibilities as accountable officer
Statement of Directors’ responsibilities in respect of the accounts (can be original when included with accounting officer responsibilities)
Statement of Directors’ responsibilities in respect of internal control
Auditor’s Report on the financial monitoring and accounts (FMA) forms
Auditor’s Report on the full statutory financial statements
21 April 2019
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