Treasury and Resources Minister
Report
Jersey Financial Reporting Manual
- 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 2011 Annual Financial Report and Accounts will be prepared. This Order will replace the Public Finances (Accounting Standards) (No. 2) (Jersey) Order 2010 which was followed for the production of the 2010 Annual Financial Report and Accounts.
- 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’.
The 2010 States of Jersey financial statements was the first to be prepared under GAAP, as interpreted for the public sector in Jersey by the Jersey Financial Reporting Manual (JFReM). For 2010 this manual was based on the equivalent UK Financial Reporting Manual (FReM) for the year ended March 2008. Following the Accounting Standards policy set in MD-2010-0147, the JFReM has been updated in line with the the equivalent UK FReM for the year ended March 2009.
An updated 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.
Under section 6.3.4 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 2.
- Recommendation
That the Minister approved the Accounting Standards Policy (appendix 1 in the attached report).
That the Minister signs the Public Finances (Accounting Standards) (Jersey) Order 2011 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.
That the Minister approves the list of Accounting Officers excepted from the definition of Directors as set out in section 6.3.4 of the JFReM (appendix 2 in the attached report).
- Reason 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 the Accounting Standards policy set in MD-2010-0147, the JFReM has been updated in line with the the equivalent UK FReM for the year ended March 2009.
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, and to satisfy the requirements of The Public Finances (Jersey) Law 2005.
- Resource Implications
None.
Report author : Manager - Financial Accounting and Control | Document date : 10/02/2012 |
Quality Assurance / Review : Director of Financial Planning and Performance | File name and path: l:\treasury\sections\corporate finance\ministerial decisions\dss, wrs and sds\2012-01xx - soj accounting standards\report accompanying accounts order md.doc |
MD sponsor : Treasurer of the States |
Appendix 1 – Treasury and Resources Accounting Policy
- 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.
- Accounting Standards
The Minister’s policy is to require the States of Jersey accounting records to be maintained and accounts 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’s 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. Attached to this policy is a summary of any adaptations made to revisions made in the relevant UK FReM. The revised JFReM has been subject to scrutiny by the Comptroller and Auditor General.
The revised JFReM, applicable to the 2011 financial year is based on the UK Financial Reporting Manual for the UK financial year ending March 2009
- 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 and not being at the cutting edge of such implementations. The Minister has, for 2010 and 2011, adopted the standards implemented by the UK central government with a two year delay. The Minister notes that in 2010 the UK moved to reporting under International Financial Reporting Standards (IFRS), and has decided to adopt IFRS on the same two year delay principle. However, the Minister intends to use this change as an opportunity to reduce the delay in adoption of standards to a single year. Therefore it is the Minister’s policy that the Jersey FReM for 2012 will adopt IFRS in line with the UK FReM for the year ending March 2011.
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 continue to consult the Comptroller and Auditor General on all significant amendments to the JFReM before implementing them.
- Summary of significant amendments made in the JFReM 2011
- Adoption of revised financial instrument standards (Chapter 7 of the JFReM):
- FRS 25 (Financial Instruments: Presentation)
- FRS 26 (Financial Instruments: Recognition and Measurement)
- FRS 29 (Financial Instruments: Disclosure)
- Adoption of other standards triggered by FRS 26:
- FRS 23 (The Effect of Changes in Foreign Exchange Rates)
- FRS 24 (Financial Reporting in Hyperinflationary Economies)
- Removal of superseded standards:
- FRS 4 (Capital Instruments)
- FRS 13 (Derivatives and Other Financial Instruments: Disclosures)
- UITF 9 (Accounting for operations in hyper-inflationary economies)