States of Jersey Accounting Standards

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A decision made 17 October 2010 regarding: States of Jersey Accounting Standards.

Decision Reference: MD-TR-2010-0147
Decision Summary Title:	States of Jersey Accounting Standards		Date of Decision Summary:	6th October 2010
Decision Summary Author:	Head of Financial Accounting and Control		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title:	Agreement of Order – Accounting standards to be adopted for the States of Jersey’s Annual Financial Statement		Date of Written Report:	6th October 2010
Written Report Author:	Head of Financial Accounting and Control		Written Report : Public or Exempt?	Public
Subject: States of Jersey Accounting Standards.
Decision(s): The Minister decided to adopt the Accounting Standards Policy (appendix 1 in the attached report). The Minister made the Public Finances (Accounting Standards) (Jersey) Order 2010 adopting the Jersey Financial Reporting Manual (JFReM), which sets the GAAP-based accounting standards to be adopted in the preparation of the States of Jersey Financial Statements. The Minister decided to approve the list of Accounting Officers excepted from the definition of Directors as set out in section 6.3.19 of the JFReM (appendix 3 in the attached report).
Reason(s) for Decision: A Strategic Objective in the States Strategic Plan 2009 to 2014 is to ‘Deliver clear and informative accounts in line with recommended commercial practice (GAAP) to ensure that financial and business planning decisions can be based on full costs and achieve best value’. Following a public consultation on the GAAP-based accounting standards to be implemented in the States of Jersey, the Minister has prepared a policy requiring the States of Jersey accounts to be based on UK GAAP as detailed in the JFReM. The 2010 States of Jersey financial statements will be the first to be prepared under GAAP. The 2009 financial statements will be prepared on the existing basis, but will include significant GAAP-based disclosures. To set by Order the revised Accounting policies and standards to be followed by the States in the production of the States of Jersey Accounts, in order to formalise the introduction of a GAAP-based accounting regime, and to satisfy the requirements of The Public Finances (Jersey) Law 2005.
Resource Implications: None.
Action required: Business Manager to forward the signed and sealed Order to the Greffier of the States without delay for subsequent presentation to the States Assembly.
Signature:		Position: Senator P F C Ozouf, Minister for Treasury and Resources
Date Signed:		Date of Decision:

States of Jersey Accounting Standards

Treasury and Resources Minister

Report

States of Jersey Accounting Standards

1. Purpose of Report

The purpose of this report is:

1) To set out the proposed policy for implementing and updating the Accounting Standards to be used in the preparation of the States of Jersey annual financial statements.

2) To provide additional information on the Ministerial Order, required under Article 32 of the Public Finances (Jersey) Law 2005 specifying the basis on which the States of Jersey’s 2009 Annual Financial Report and Accounts will be prepared. This Order will replace the Public Finances (Accounting Standards) (No. 2) (Jersey) Order 2008 which was followed for the production of the 2009 Annual Financial Report and Accounts.

2. Background

A strategic objective in the States Strategic Plan 2009 to 2014 is to ‘Deliver clear and informative accounts in line with recommended commercial practice (GAAP) to ensure that financial and business planning decisions can be based on full costs and achieve best value’.

Following a public consultation on the GAAP-based accounting standards to be implemented in the States of Jersey, the Minister has prepared a policy requiring the States of Jersey accounts to be prepared in accordance with UK GAAP, modified for the Jersey public sector. The 2010 States of Jersey financial statements will be the first to be prepared under GAAP.

The proposed policy for implementing and updating the GAAP-based Accounting Standards to be used in the preparation of the States of Jersey financial statements is set out in Appendix 1.

In order to implement this policy, it is proposed that the Jersey Financial Reporting Manual (JFReM) is approved by the Minister, which sets out the accounting standards to be adopted in the preparation of the States of Jersey Financial Statements.

The key changes between current accounting and accounting under the JFReM are set out in Appendix 2.

Under section 6.3.19 of the JFReM the Minister can exempt Accounting Officers of minor departments from the definition of senior managers. The rationale for the proposed exemptions and the list of approved exempt Accounting Officers is included in Appendix 3.

The JFReM is included in the Ministerial Order.

3. Recommendation

The Minister is asked to approve the:

· policy for implementing and updating the Accounting Standards to be used in the preparation of the States of Jersey annual financial statements.

· Ministerial order bringing into effect the Jersey Financial Reporting Manual (JFReM), which sets out the accounting standards to be adopted in the preparation of the States of Jersey Financial Statements.

· list of exempt Accounting Officers.

5. Reason for Decision

To implement GAAP-based accounting in the States of Jersey, and to ensure that the accounting standards that are applied are maintained appropriately.

Report author : Head of Financial Accounting and Control	Document date : 06/10/2010
Quality Assurance / Review : Taxes office Finance Director	File name and path: l:\treasury\sections\corporate finance\ministerial decisions\dss, wrs and sds\2010-0147 - states of jersey accounting standards - at\wr - agreement of order jfrem - at.doc
MD sponsor : Interim Treasurer of the States

Appendix 1 – Treasury and Resources Accounting Policy

1. Introduction

The Public Finances (Jersey) Law 2005 states that the annual financial statements of the States must be prepared in accordance with generally accepted accounting practice and accounting standards prescribed by an Order made by the Minister. This policy sets out the proposed model for implementing the accounting standards to be used in the preparation of the States annual financial statements, and the process for updating these accounting standards.

2. Accounting Standards

The Minister’s policy is to require the States of Jersey accounts to be prepared in accordance with UK GAAP, modified for the Jersey public sector.

Having considered the various options available to implement GAAP, the Minister has concluded that the preferred option is to follow the approach of the UK central government. The Minister has therefore determined that the set of generally accepted accounting practice (GAAP) standards that will be adopted for the States of Jersey is UK GAAP modified for the Jersey public sector. A Jersey Financial Reporting Manual (JFReM) has been prepared which details the application of these Generally Accepted Accounting Principles to the States of Jersey.

The Minister will implement UK GAAP by making a Ministerial Order under the Public Finances (Jersey) law 2005 requiring the preparation of the States Accounts in line the JFReM. The following paragraphs outline how this policy is being implemented.

The JFReM is based on the UK version of the same document. The UK version is prepared by HM Treasury and is subject to scrutiny by an independent board, the Financial Reporting and Advisory Board. Section 4 contains a summary of the significant differences between the 2008 UK Financial Reporting Manual and the initial JFReM. The initial JFReM has been subject to scrutiny by the Public Accounts Committee and the Comptroller and Auditor General, as well as via a public consultation.

The initial JFReM, applicable to the 2009 financial year (excluding comparators) is based on the UK Financial Reporting Manual for the UK financial year ending March 2008. In order to give stability during the period of transition from the current accounting standards this manual will apply to the 2009 and 2010 financial years.

3. Maintaining Accounting Standards

The Minister recognises that accounting standards are not fixed, that they evolve over time and also that the implementation of new standards in the public sector context can be a complex and resource hungry exercise.

The Minister’s policy, therefore, is to update the accounting standards adopted by the States on an annual basis. The Minister intends to follow those standards adopted by the UK Government in their annually updated Financial Reporting Manual. The implementation of new accounting standards can be complex and resource intensive; there are obvious benefits to a small jurisdiction such as Jersey to learning from others. The Minister therefore intends to adopt the standards implemented by the UK central government with a two year delay. The initial JFReM, based on the UK Manual for the year to March 2008, will therefore be applied in full for the 2009 and 2010 financial years. The Jersey FReM applicable to the 2011 financial year will reflect the equivalent UK FReM for the year ended March 2009, and so on. The Minister notes that in 2010 the UK moved to reporting under International Financial Reporting Standards (IFRS). The Minister intends to maintain this two year difference to the UK version of the manual. The Minister has considered this and has decided to adopt IFRS on the same two year delay principle. Therefore it is the Minister’s policy that the Jersey FReM for 2012 will adopt IFRS in line with the UK FReM for 2010.

As with the preparation of the initial JFReM, new standards introduced in the UK FReM may require some modification for the States of Jersey. The Minister intends to consult the Comptroller and Auditor General on all significant amendments to the JFReM before implementing them.

4. The key differences between the initial Jersey Financial Reporting Manual and the 2008 UK Financial Reporting Manual

There are very few significant differences between the Jersey and UK FReM. The majority of amendments are minor, relating to:

o terminology (e.g. reference to Jersey bodies and Jersey legislation)

o the fact that the Jersey FReM is designed to support the preparation of central government consolidated accounts, rather than the UK FReM aim of supporting the preparation of individual Department accounts

o reducing the number of options available to entities in order to improve control (such as the reduction in options for valuing assets).

There are five areas where there are significant differences:

Group Boundary

o the group boundary is wider in the Jersey FReM than in the UK equivalent. The group boundary in the Jersey FReM is based on the principle of direct control.

Disclosure

o the Jersey FReM requires additional disclosure regarding Grants and Subsidy Payments made

o the Jersey FReM is more prescriptive on the format of the Operating Cost Statement

o a section requiring disclosure of fees and charges has been deleted as this is not a GAAP requirement and it is felt that the departmental pages accompanying the accounts (which will give a breakdown of the income elements in the Operating Cost Statement) provides adequate analysis of income

o a section on disclosure of remote contingent liabilities has been deleted as this is not a GAAP requirement and it was considered that the cost of obtaining this information will exceed the benefit of disclosure.

Income

o the Jersey FReM makes specific reference to the treatment of non-exchange revenue (such as taxation income). There is not a UK FReM equivalent.

Budgeting

o the UK FReM includes several references to the UK Budgeting structure, in particular Chapter 3 ‘Statement of Parliamentary Supply’. This is in part due to the fact that in the UK, budgets are approved on a different basis to that set out in the FReM, therefore disclosure and reconciliations are required. It is proposed that the budgeting framework will match the accounting framework therefore budgeting references have been largely removed (including the entirety of Chapter 3) as they were considered better dealt with in the separate budgeting guidance.

Pensions

o the Jersey FReM includes a requirement to comply with Financial Reporting Standard 17, thereby ensuring compliance with UK GAAP for pension schemes. The UK FReM deals primarily with department accounts and the treatment of group defined benefit schemes in individual department accounts.

Appendix 2 – Key changes between current accounting and reporting practice and the Jersey Financial Reporting Manual (JFReM) requirements

There are several areas where the proposed JFReM will impact on existing financial reporting. The most important of which are listed below:

Area

Benefits

Accounting for Fixed Assets

Fixed Assets will be recorded in the accounts at valuation (including Land, Buildings and major equipment). Depreciation, revaluations and impairments will all be accounted for. Valuations will be updated on a regular basis.

· Improved information for decision making

· Important element of benchmarking with UK

· Enables financial regime that incentivises appropriate behaviour

· True cost of holding assets recognised in the accounts, together with information on asset values

· Enables information to be provided on the full cost of services.

Accounting for the “States of Jersey Group”

The inclusion of additional entities in the States Financial Report and Accounts (the main ones are the Drugs Trafficking Confiscation Fund, the Criminal Offences Confiscation Fund).

· The States of Jersey financial report will present a more comprehensive picture of the activities and size of government in Jersey

· Increased transparency around those entities and services for which the States is responsible

· Facilitates accountability for all component parts of the States of Jersey.

Consolidated Rather than Aggregated Accounts

Elimination of inter-entity transactions.

· Consolidated Financial Reports will present a clearer picture of external expenditure and income

· Assets and liabilities disclosed in the accounts will represent the true assets and liabilities of the States

· The ‘real’ impact of decisions on the States financial position will be clearer, facilitating improved transparency and accountability for decisions.

Appropriate Valuation of Assets and Liabilities

Investments will be carried at Market Value (including investments in Jersey utility companies, such as the JEC).

· A more accurate representation of the value of investments held.

· Greater transparency

· Improved information for decision making

Consistent Treatment

Consistency in the way transactions are treated (for example, staff recharges will be treated consistently across the States).

· Improved comparability of information across Departments.

Revised Accounts Format

The Operating Cost Statement (Income & Expenditure) format will change, with supporting notes providing additional detail on categories.

· More transparent accounts, providing an improved breakdown of income and expenditure

· Provide more relevant information to the reader.

Providing more focussed and relevant interpretation of the financial accounts

Enhanced narrative disclosure to support the accounts.

· Improved information on performance will be provided to readers

· Improved transparency.

Improved Disclosure of Grants and Subsidies

A statement of subsidy and grant payments will be included in the accounts.

· Improved transparency and accountability.

Disclosure of Losses and Special Payments

A statement of losses, special and other payments will be included in the accounts.

· Improved transparency and accountability.

Disclosure of Accounting Officer Interests

Details of interests held by Accounting Officers will be included in the accounts.

· Improved transparency and accountability.

Enhanced Reporting of Remuneration

Remuneration disclosure will consist of:

o A remuneration report

o A salary banding disclosure equivalent to existing disclosure, with additional segmentation.

o A disclosure of Accounting Officers’ remuneration

o A disclosure of Ministerial remuneration entitlement (existing disclosure)

· Improved transparency and accountability.

Segmental Analysis

A segmental analysis that will provide a clearer audit trail between the headline numbers and the individual department pages.

· Improved clarity around cost of providing core functions of the States.

Renewed Focus on Financial Performance

Production of consolidated accounts for the States of Jersey with supplemental information provided in an annex. Majority of performance data to be included in Annual Performance Report.

· Improved clarity around financial performance

· Improved readability of accounts.

Please note that the above are only the main points, and cannot be a substitute for a full review of the JFReM.

Appendix 3 – Accounting Officers of minor departments

Under section 6.3.19 of the JFReM the Minister may exempt Accounting Officers of minor departments from inclusion in the definition of senior managers for the States. There are specific disclosure requirements (principally remuneration disclosures and related party disclosures) which are applicable to those persons deemed to be senior managers. Senior managers are those who have responsibility for the organisation as a whole, which in a private company is the Directors of the company. For the States of Jersey it is deemed that Accounting Officers most closely equate to the Directors of a private company, but it is recognised that some Accounting Officers of minor departments would not be deemed to have any corporate responsibility. For this reason the Accounting Officers for the following departments are excluded from the definition in 6.3.19:

· Office of the Lieutenant Governor

· Data Protection Commissioner

· Official Analyst

· Overseas Aid Commission

· Office of the Dean of Jersey