BEST PRACTICE ACCOUNTS

Transcription

1 BEST PRACTICE ACCOUNTS RP LIMITED AN EXEMPT CHARITY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2013 (I & PS) (NO SUBSIDIARIES) (NO PROPERTY REVALUATIONS) BASIS OF PREPARATION Compliant with 2010 SORP Update for RPs and 2012 Accounting Direction and inclusive of changes in basis of accounting for housing components and negative goodwill. Beever and Struthers 2013

2 CONTENTS Page No. Board Report 1-2 Operating and Financial Review 3-8 Report of the Independent Auditors 9 Income & Expenditure Account 10 Statement of Total Recognised Surpluses and Deficits 11 Balance Sheet 12 Cash Flow Statement 13 Notes to the Financial Statements 14-35

3 BOARD REPORT FOR THE YEAR ENDED 31 MARCH For all RPs the report should contain: Principal activities - The principal activities of the RP and its subsidiary undertakings in the course of the year. Names of directors - The names of directors at any time during the year (Direction definition). Review of business - A fair review of the development of the business and its subsidiary undertakings during the financial year and of their position at the end of it. Post balance sheet events - Particulars of any important post balance sheet events affecting the company and its subsidiary undertakings. Future developments - Indications of likely future developments in the business of the company and its subsidiary undertakings. Research and development - Indication of research and development activities, if any, of the company and its subsidiary undertaking. Land and buildings - Any significant and substantial difference in market value of interests in land at the year end from balance sheet amount. Directors share interests - Directors interests in shares or debentures of the company or any other body corporate in the same group. Directors share options, etc. - Options granted or exercised in group companies. Acquisition of the company s own shares - Details of acquisition of own shares. Political and charitable gifts. Employment of disabled persons and employee involvement (RPs with 250 or more employees only). Policy on payment of creditors. A description of the responsibilities of the board if these are not included as a separate report. For RPs managing 50 homes or more a specific separate statement on internal financial control. Amounts transferred to designated reserves. All RPs are required under the HCA value for money statement to report how they are reviewing and improving value for money in providing services to tenants this can be in either the board report or the operating and financial review. An example is included in the OFR below: These requirements flow from the SORP and Accounting Direction. Companies Act RPs may have to disclose other matters as required by the Companies Acts. 2. All RPs that are also registered charities should include, in addition to the above, but not duplicating the above: An indication of the nature of the governing document. The names of all the charity trustees who have acted at any time during the course of the year. The address of the principal or registered office of the charity. The names and addresses of any other relevant organisations or persons (e.g. bankers, solicitors, auditors, investment advisors). Details of any specific restrictions imposed by the governing document concerning the way in which the charity can operate. A summary of any investment powers and their authority (e.g. the governing document, a charity commission order). An explanation of what the charity is trying to achieve and how it is going about it. A review of the development, activities and achievements of the charity during the year. A review of the transactions and financial position of the charity and an explanation of the salient features of the accounts. This review should put the accounts into an accurate perspective so that they may be readily understood and should show how the charity aims to achieve its objectives. On a fund by fund basis, confirmation or otherwise that that the charity s assets are available and adequate to fulfil the obligations of the charity. A review of the relationships between the charity and its connected charities and with any other charities and organisations with which it co-operates in the pursuant of its charitable objectives. A statement in relation to how the charity delivers public benefit and the statement The trustees have considered the guidance published by the Charity Commission in relation to public benefit. 3. RPs that are companies are required to make the following disclosure, and Good Practice Note 7 from the Housing Corporation on external audit matters recommends RPs that are not companies to consider similar disclosures: The board members who held office at the date of approval of this board report confirm that, so far as they are each aware, there is no relevant audit information of which the association s auditors are unaware; and each board member has taken all the steps that they ought to have taken as a board member to make themselves aware of any relevant audit information and to establish that the association s auditors are aware of that information. 1

4 BOARD REPORT FOR THE YEAR ENDED 31 MARCH 2013 Statement of the Board s Responsibilities in Respect of the Accounts The Industrial and Provident Societies Acts and registered social housing legislation require the Board to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the association and of its income and expenditure for that period. In preparing these financial statements, the Board is required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the association will continue in business. The Board is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the association and enable it to ensure that the financial statements comply with the Industrial and Provident Societies Acts, 1965 to 2002, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing It has general responsibility for taking reasonable steps to safeguard the assets of the association and to prevent and detect fraud and other irregularities. Statement on the RP s system of internal control The Board has overall responsibility for establishing and maintaining the whole system of internal control and reviewing its effectiveness. The Board recognises that no system of internal control can provide absolute assurance against material misstatement or loss or eliminate all risk of failure to achieve business objectives. The system of internal control is designed to manage key risks and to provide reasonable assurance that planned business objectives and outcomes are achieved. It also exists to give reasonable assurance about the preparation and reliability of financial and operational information and the safeguarding of the association s assets and interests. In meeting its responsibilities, the Board has adopted a riskbased approach to internal controls which are embedded within the normal management and governance process. This approach includes the regular evaluation of the nature and extent of risks to which the association is exposed and is consistent with Turnbull principles as incorporated in the former Housing Corporation circular 07/07: internal controls assurance. The process adopted by the Board in reviewing the effectiveness of the system of internal control, together with some of the key elements of the control framework includes: Identification and evaluation of key risks Management responsibility has been clearly defined for the identification, evaluation and control of significant risks. There is a formal and ongoing process of management review in each area of the association s activities. The executive team regularly considers and receives reports on significant risks facing the association and the Chief Executive is responsible for reporting to the Board any significant changes affecting key risks. Overall control procedures The Board retains responsibility for a defined range of issues covering strategic, operational, and financial and compliance issues including treasury strategy and new investment projects. Policies and procedures cover issues such as delegated authority, segregation of duties, accounting, treasury management, health and safety, data and asset protection and fraud prevention and detection. Information and financial reporting systems Financial reporting procedures include detailed budgets for the year ahead, detailed management accounts produced monthly and forecasts for the remainder of the financial year and for subsequent years. These are reviewed in detail by the executive directors and are considered and approved by the Board. The Board also regularly reviews key performance indicators to assess progress towards the achievement of key business objectives, targets and outcomes. Monitoring and corrective action A process of regular management reporting on control issues provides assurance to senior management and to the Board. This includes a rigorous procedure for ensuring that corrective action is taken in relation to any significant control issues, particularly those that may have a material impact on the financial statements and delivery of our services. The internal control framework and the risk management process are subject to regular review by Internal Audit who advise the senior management team and report to the Audit Committee. The Audit Committee considers internal control and risk at each of its meetings during the year. The Audit committee conducts an annual review of the effectiveness of the system of internal control and has taken account of any changes needed to maintain the effectiveness of risk management and control process. The Audit Committee makes an annual report to the Board. The Board has received this report. The Board confirms that there is an ongoing process for identifying, and managing significant risks faced by the association. This process has been in place throughout the year under review, up to the date of the annual report and accounts, and is regularly reviewed by the Board. By order of the Board Chair Date: 2

5 OPERATING AND FINANCIAL REVIEW FOR THE YEAR ENDED 31 MARCH 2013 Introduction This Operating and Financial Review (OFR) is prepared for a large association. Its purpose is to illustrate how all of the disclosure requirements in the 2010 SORP Update would be met. This document can be customised so as to be applicable to smaller associations. NATURE OF BUSINESS Description The association has the following mix of housing stock in management General needs x X Supported housing x X Shared ownership x X Temporary accommodation x X Keyworkers x X Total x X Stock is located in xxx. Measured in terms of units in management this association is the xnth largest in England and Wales. The table above shows that the association has a broad mix of stock but with most exposure to the general needs sector. The housing stock is general new build and developed over the past 30 years and the state of the stock is considered by external consultants to be good. Only x% of the stock is considered to be non-compliant with Decent Homes Standard hence there are few major catch up repairs that need to be done. The association is regulated by the Homes and Communities Agency (HCA) with whom it is registered. It has to comply with the HCA s Regulatory Code. Capital grant is administered by the Homes and Communities Agency (HCA). The association is governed by a Board of Management composed of twelve non-executive members. Senior management team members attend board meetings. The amber light assessment was as a result of concern by the HCA about the association s approach to Equality & Diversity and at the low attendance at meetings. An action plan has been agreed with the HCA to address these issues and latest indications from the HCA are that this traffic light rating will be raised to green status. Housing associations were subject to a rolling programme of inspections by the Audit Commission who assess how good is the service to tenants and whether the association is working towards continuous improvement. This association s latest inspection visit was carried out in November 200X. Our service was rated as good i.e. two stars and there were good prospects for improvement. Progress made to implement the Audit Commission recommendations is monitored by the HCA who have now assumed responsibility for regulatory monitoring of registered providers of social housing performance and we have an agreed action plan in place which will result in further improvements to the delivery of repairs service to tenants. The association is managed by a senior management team headed by a chief executive and supported by directors of Footnote: the OFR is required by RPs with more than 5,000 units and encouraged for RPs with less than 5,000 units. 3

6 OPERATING AND FINANCIAL REVIEW FOR THE YEAR ENDED 31 MARCH 2013 NATURE OF BUSINESS Objectives and strategy The objectives and strategy of the association are set out in a business plan that is reviewed annually and approved by the board. A summarised version of this document is available on application to the Company Secretary. The business planning process includes an assessment of strengths and weaknesses, opportunities and threats which are discussed annually between the senior management team and the board. The association s main objectives and strategies for both the past year and the coming year are summarised in the next table: Objectives Strategy Development To remain a preferred provider in receipt of HCA capital grant meet HCA delivery standards successful delivery of programme develop alliances with local partners To deliver an annual programme of 300 new homes into management each year delivery of a mixed tenure programme including stock types currently in management plus properties for outright sale Asset management To achieve full compliance with Decent Homes Standard by 200X refurbishment programmes for installation of new central heating systems to be completed by 200X To plan major refurbishment programmes over the next 10 years undertake sample based stock condition survey plan for rationalisation of existing stock by selective asset sales Corporate responsibility To develop high quality affordable housing to examine innovative house building technologies To support community regeneration work with local authorities and local partners To reward employees fairly implement performance related reward system re-grade all existing posts Housing management and maintenance To provide high quality services monitor performance against targets To seek continuous improvement use Best Value techniques to challenge and improve services to tenants. Finance To generate surpluses sufficient to maintain adequate financial strength, support development programme and meet lenders covenants continuous update of 10 year financial plan detailed financial appraisals of all new schemes prior to approval to proceed assessment of impact of new schemes on financial plan To have funding in place to finance development programme over next X years arrange new facilities in coming year amounting to Xm renegotiate existing facilities with lenders to improve covenant terms To implement rent restructuring by 20YX and implement affordable rents for new developments and relets manage rent plan to meet rules to update financial plan with rents from rent model 4

7 OPERATING AND FINANCIAL REVIEW FOR THE YEAR ENDED 31 MARCH 2013 NATURE OF BUSINESS Measures The next table lists some of the key indicators used by senior management and the board to monitor achievement of these objectives. Objectives Indicators Development new units into management by stock type timeliness/lateness of units into management cost per unit Asset management average SAP ratings units failing Decent Homes Standard Corporate responsibility reporting to board Housing management rent collection rate current arrears as % of gross annual debit average re-let times voids available/unavailable to let lettings by ethnicity repair response times repair appointments made and kept repairs fixed first time tenant satisfaction Financial management accounts/budgets loan covenants o interest cover o gearing OPERATING REVIEW Performance in period X 201X 201X 201X Turnover Operating surplus General needs x x x x Supported housing x x x x Shared ownership x x x x Temporary accommodation x x x x Keyworkers x x x x Total x x x x Note that 5 year trends for these activities are on page X. All sectors achieved their budgeted turnover and surplus except for temporary accommodation where difficulties were experienced in identifying properties to be leased on a short term basis from private landlords. 5

8 OPERATING AND FINANCIAL REVIEW FOR THE YEAR ENDED 31 MARCH 2013 OPERATING REVIEW (continued) Performance in period All performance targets were met or exceeded with the exception of the following key indicators: Rent collection rate 98.1% (target 100%) due to problems with housing benefit payment. Current tenant arrears 6.8% (target 5.5%) due to above Emergency repairs within target 85% (target 95%) due to performance Urgent repairs within target 82% (target 90%) Routine repairs within target 78% (target 90%) Failure of key contractor Dynamics of the social landlord This section analyses the main factors and influences that will have an effect on the future performance of the association irrespective of whether they were significant in the period under review. The main risks faced by the association are considered annually by the senior management team with the board as part of the business planning process. The definition of risk for this purpose is an event that could prevent the business plan from being achieved if it were to crystallise. Risks are recorded in a risk register which also records key controls to manage each risk who is responsible for the control and how the control effectiveness is monitored. Risks are analysed according to their impact and probability i.e. high, medium and low given the current control environment. Risks fall into two categories i.e. strategic and operational. Strategic risks are risks that affect the strategy of the association and tend to be the result of external e.g. government and regulatory influences. Operational risks are risks to the operational performance of the business and tend to be within the control of the association. The board has assessed that the risks in the next table are those that are most likely to influence future performance. Risk Strategic Availability of capital grant Reliance on shared ownership sales Reliance on outright property sales Comments This association is one of the HCA s approved development partners of which there are only XX in England and Wales and were the association to lose this status it would have a significant impact on the ability of the association to continue a 300 unit per year development programme The association s business and financial plan assumes the sale of XX units of shared ownership per year generating Xm in sales receipts and were this not to be achieved due for example a weakening property market it could put the financial plan and budget at risk The plan assumes that revenue from outright property sales will amount to Xm and for the above reasons the financial plan and budget could be at risk if these sales were not achieved. Operational Interest rates Sensitivity analysis is undertaken each time the financial plan is updated to assess the impact of adverse movements in interest rates on the association; borrowings are summarised in the financial review and X% of borrowings are at fixed rates of interest to minimise the association s exposure to interest rate movements. Loan covenants Credit control over rental income Reliance on partnering contractors The critical and most sensitive covenant for this association is the ratio between operating surplus and interest cost. Failure to recover 1% of rental income costs the association Xk. Two contractors are responsible for delivery of the majority of the day-today repairs. 6

9 OPERATING AND FINANCIAL REVIEW FOR THE YEAR ENDED 31 MARCH 2013 OPERATING REVIEW (continued) Investment for the future The board is committed to spending Xm each year to maintain and improve its existing housing stock. It endeavours to maintain a balance of 50:50 in spreading this expenditure between day-to-day responsive repairs and planned works such as replacements of roofs, kitchens, bathrooms and heating systems. In addition to investing in its existing stock the board has approved a new build housing programme of 300 units per year. FINANCIAL REVIEW The principal aim of this section is to explain the capital structure of the association, its treasury policy, its sources of liquidity and their application including the implications of the financing requirements arising from its investment plans. The main accounting policies that are critical to the results of the association are the method of accounting for capital grant deducted in the balance sheet from the cost of assets capitalisation of interest and development administration costs in carrying out the development programme added to the cost of new estates and the calculation of housing property depreciation. Each of these policies have remained unchanged in the period under review. Capital structure and treasury policy Borrowings at the period end were Xm and unused facilities were an additional Xm. This debt is borrowed wholly from banks and building societies in the UK. Borrowings management is the responsibility of the finance director. Strategy is set annually and approved by the policy and finance committees. The current policy is to maintain X% of borrowings at fixed rates of interest. Maturity profile: the next table provides an analysis of when the debt falls due for repayment: million 31.3.XX 31.3.XX 0-1 year x x 2-3 years x x 3-5 x x 5-10 x x x x x x x x x x Xm Xm The association does not make use of hedging instruments other than to fix variable rate debt at the time of drawdown. A rule change would be required to enable hedging to be undertaken at other times and it is not intended to seek such a change as it is considered by the board that adequate control over interest rate arrangement currently exists. The association borrows only in sterling and so does not have any currency risk. Surpluses are invested in approved UK institutions and the finance committee monitors investment returns. 7

10 OPERATING AND FINANCIAL REVIEW FOR THE YEAR ENDED 31 MARCH 2013 OPERATING REVIEW Cash flows Cash inflows and outflows for the period under review are set out in the cash flow statement. Net cash inflows from operating activities are from the management of housing stock. Returns on investment and servicing of finance are due to interest income and interest charges. The net cash outflow from capital expenditure is the spend on properties new and existing which has been capitalised less grant less sale proceeds plus spend on other fixed assets. The net movement on financing is the difference between loans repaid and new loans. The association experienced a net increase in cash and bank balances in the last year of Xm. This was primarily due to grant receipts exceeding capital expenditure due to delays in the development programme. Going concern (not applicable unless an issue) Current liquidity Cash and bank balances at the year-end were Xm. Net current assets were Xm. Additionally the association has facilities and security in place to borrow a further Xm. The board does not consider there are any seasonal effects on the borrowing requirements. The main factor influencing the amount and timing of borrowings is the pace of the development programme and this does have a significant impact according to the timing of land acquisitions and interim payment to contractors. VALUE FOR MONEY The board approved the value for money (VfM) strategy in March 20YX, its key objectives are: Set out the starting point from which VfM and efficiency gains are measured Identify and understand the needs and expectations of residents Develop the link between residents priorities and financial planning Develop a clear VfM culture within the organisation Review and develop the framework for measuring and reporting on VfM VfM is not about reducing costs but also about achieving a balance between costs and quality, with a particular focus on residents needs. The drive is to maximise the use of the association s assets to deliver social, environmental and financial returns. The opportunities for efficiency come through economies of scale, financial strength, rationalisation, simplification and self-regulation. Note: from April 2012 the RP will need to set out how it has achieved improved VfM and quantify savings where possible Example: During the year VfM was delivered through negotiation of framework agreements with contractors and consultants, this has resulted in annual savings of xk. STATEMENT OF COMPLIANCE The board confirms that this Operating and Financial Review has been prepared in accordance with the principles set out in Para 33 and 34 of the 2010 SORP Update for registered providers. 8

11 REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF RP HOUSING ASSOCIATION We have audited the financial statements of XYZ HA for the year ended 31 March 2013 on pages 10 to 35. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Association s members, as a body, in accordance with Section 9 of the Friendly and Industrial and Provident Societies Act Our audit work has been undertaken so that we might state to the Association s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Association and the Association s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of the Board and the Auditor As explained more fully in the Statement of Board s Responsibilities set out on page 2, the Board is responsible for the preparation of the financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s [(APB s)] Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Association s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Board; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Board Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the Association s affairs as at 31 March 2013 and of its income and expenditure for the year then ended; and have been properly prepared in accordance with the Industrial and Provident Societies Acts 1965 to 2002, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Industrial and Provident Societies Acts 1965 to 2002 require us to report to you if, in our opinion: a satisfactory system of control over transactions has not been maintained; or the association has not kept proper accounting records; the financial statements are not in agreement with the books of account; or we have not received all the information and explanations we need for our audit. Address Statutory Auditors Date: 9

12 INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31 MARCH 2013 Notes Turnover 2 Cost of sales 2 Operating costs 2 Operating surplus Surplus on sale of fixed assets 5 Interest receivable and similar income Interest payable and similar charges 4 Surplus on ordinary activities for the year 6 Transfer to designated reserves 16 Surplus for the year after transfers 16 All amounts relate to continuing activities. All recognised gains and losses are included in this statement (or see overleaf). The above surpluses are the historical cost surpluses (or see overleaf). The notes of pages 14 to 35 form an integrate part of these accounts. 10

13 STATEMENT OF TOTAL RECOGNISED SURPLUSES AND DEFICITS FOR THE YEAR ENDED 31 MARCH 2013 Notes Surplus for the year Unrealised surplus on revaluation Actuarial surplus 19 Total recognised surplus for the year Prior period adjustment Total surpluses since the last annual report STATEMENT OF HISTORICAL COST SURPLUSES AND DEFICITS FOR THE YEAR ENDED 31 MARCH Surplus for the year Realisation of investment revaluations Historic cost surplus for the year The notes of pages 14 to 35 form an integrate part of these accounts. 11

14 BALANCE SHEET AS AT 31 MARCH 2013 Fixed assets 7 Housing properties at cost less depreciation Less: Social Housing and other Grants Other tangible fixed assets Notes Investments Homebuy equity loans Less: Grant on Homebuy equity loans Current assets Housing properties for sale 8 Debtors 9 Dabtors: amounts due after one year 9 Investments 10 Cash at bank and short term deposits 11 Less Creditors Amounts falling due within one year 12 Net current assets Total assets less current liabilities Creditors Amounts falling due after more than one year 13 Pension liability 19 Provision for liabilities and charges 14 Capital and reserves Non equity share capital 15 Revaluation reserves 16 Designated reserves 16 Revenue reserves 16 The financial statements on pages 10 to 35 were approved and authorised for issue by the Board and were signed on its behalf by: on Board Member: Board Member: Secretary: The notes of pages 14 to 35 form an integrate part of these accounts. 12

15 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2013 Net cash flow from operating activities Notes Returns on investments and servicing of finance 22 Capital Expenditure Acquisition and construction of housing Social Housing and other grants received Purchase/sales of other fixed assets Sales of housing properties Net cash inflow (outflow) before use of liquid resources and financing Management of liquid resources 22 Cash invested/withdrawn in/from money market Financing 22 Increase (decrease) in cash 22 Reconciliation of operating surpluses to net cash inflow from operating activities Operating surplus Depreciation and impairment charges Surplus on sale of tangible fixed assets Change in debtors Change in creditors Change in provisions Net cash inflow from operating activities Reconciliation of net cash flow to movement in net debt Increase in cash in the period Cash used to increase liquid resources Change in loans Change in net debt 22 Net debt at start Net debt at end The notes of pages 14 to 35 form an integrate part of these accounts. 13

16 1. PRINCIPAL ACCOUNTING POLICIES The RP is incorporated under the [Industrial & Provident Societies Act 1965/Companies Act 2006] and is registered with Homes and Communities Agency as a Registered Provider of social housing. Basis of accounting The financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards and Statements of Recommended Practice of the United Kingdom. The accounts comply with the Industrial and Provident Societies Acts 1965 to 2002, the Housing and Regeneration Act 2008, the Accounting Direction for Private Registered Providers of Social Housing 2012 and the Statement of Recommended Practice: accounting by Registered Social Housing Providers Update 2010 published by the National Housing Federation. The accounts are prepared on the historical cost basis of accounting as modified by the revaluation of investments. Turnover Turnover represents rental income receivable, revenue grants from local authorities and the Homes and Communities Agency, income from the sale of shared ownership and other properties developed for outright sale and other income. Fixed Assets and depreciation Tangible fixed assets are stated at cost, less accumulated depreciation and capital grants. Housing properties under construction are stated at cost and are not depreciated. These are reclassified as housing properties on practical completion of construction. Freehold land is not depreciated. Where a housing property comprises two or more major components with substantially different useful economic lives (UELs), each component is accounted for separately and depreciated over its individual useful economic life. Expenditure relating to subsequent replacement or renewal of components is capitalised as incurred. The association depreciates freehold housing properties by component on a straight-line basis over the estimated useful economic lives of the component categories. Useful economic lives for identified components are as follows: Years Boilers 10 kitchens 20 bathroom 30 roofs 50 windows 40 structure 100 The association depreciates housing properties held on long leases in the same manner as freehold properties, except where the unexpired lease term is shorter than the longest component life envisaged, in which case the unexpired term of the lease is adopted as the useful economic life of the relevant component category. Depreciation is charged on other tangible fixed assets on a straight-line basis over the expected economic useful lives which are as follows: Years plant & machinery 20 furniture and equipment 10 office equipment 5 14

17 1. PRINCIPAL ACCOUNTING POLICIES (continued) Housing properties Donated land is included in cost at its valuation on donation, with the donation treated as a capital grant. In the case of section 106 land the valuation takes into account all the conditions of sale imposed by the Local Authority and its value in use to the RP. When housing properties are to be transferred to another association, the net costs, after SHG, are dealt with in current assets. Shared ownership properties The costs of shared ownership properties are split between current and fixed assets on the basis of the first tranche portion. The first tranche portion is accounted for as a current asset and the sale proceeds shown in turnover. The remaining element of the shared ownership property is accounted for as a fixed asset and subsequent sales treated as sales of fixed assets. Social Housing and Other Grants Where developments have been financed wholly or partly by social housing and other grants, the cost of those developments has been reduced by the amount of the grant received. When Social Housing Grant (SHG) in respect of housing properties in the course of construction exceeds the total cost to date of those housing properties, the excess is shown as a current liability. SHG received for items of cost written off in the Income and Expenditure Account are matched against those costs as part of turnover. SHG can be recycled by the RP under certain conditions, if a property is sold, or if another relevant event takes place. In these cases, the SHG can be used for projects approved by the Homes and Communities Agency. However, SHG may have to be repaid if certain conditions are not met. In certain circumstances, SHG may be repayable, and, in that event, is a subordinated unsecured repayable debt. Capitalisation of interest and administration costs Interest on loans financing development is capitalised up to the date of the completion of the scheme and only when development activity is in progress. Administration costs relating to development activities are capitalised only to the extent that they are incremental to the development process and directly attributable to bringing the property into their intended use. Leasing and hire purchase Where assets are financed by hire purchase contracts and leasing agreements that give rights approximating to ownership, they are treated as if they had been purchased outright. They are depreciated over the shorter of the lease term and their economic useful lives. The corresponding leasing commitments are shown as obligations to the lessor in creditors. The finance element of the rental is charged to the profit and loss account so as to produce a constant periodic rate of charge on the net obligation outstanding in each period. Rentals paid under operating leases are charged to the Income and Expenditure account as incurred. Retirement benefits The cost of providing retirement pensions and related benefits is charged to management expenses over the periods benefiting from the employees services. The disclosures in the accounts follow the requirements of FRS

18 1. PRINCIPAL ACCOUNTING POLICIES (continued) Impairment Reviews for impairment of housing properties are carried out on an annual basis and any impairment in an income generating unit is recognised by a charge to the income and expenditure account. Impairment is recognised where the carrying value of an income generating unit exceeds the higher of its net realisable value or its value in use. An income generating unit could be a single property, but it is normally a group of properties whose income and expenditure can be separately identified. Impairment reviews are carried out on assets whose useful economic lives are expected to exceed 50 years in accordance with Financial Reporting Standard 11. Designated reserves The RP designates those reserves which have been set aside for uses which prevent them, in the judgement of the Board, from being regarded as part of the free reserves of the Association. Provisions The Association only provides for contractual liabilities. Recycling of Capital Grant Where Social Housing Grant is recycled, as described above, the SHG is credited to a fund which appears as a creditor until spent. Disposal Proceeds Fund (DPF) Receipts from the sale of SHG funded properties less the net book value of the property and the costs of disposal are credited to the DPF, this creditor is carried forward until it is used to fund the acquisition of new social housing. Value Added Tax The RP charges VAT on some of its income and is able to recover part of the VAT it incurs on expenditure. All amounts disclosed in the accounts are inclusive of VAT to the extent that it is suffered by the Group and not recoverable. Service charges The RP operates both fixed and variable service charges on a scheme by scheme basis in full consultation with residents. Where variable service charges are used the charges will include an allowance for the surplus or deficit from prior years, with the surplus being returned to residents by a reduced charge and a deficit being recovered by a higher charge. Until these are returned or recovered they are held as creditors or debtors in the balance sheet. Where periodic expenditure is required a provision may be built up over the years, in consultation with the residents. Until these costs are incurred this liability is held in the balance sheet within long term creditors. Support income and costs including Supporting People income and costs Supporting People (SP) contract income received from Administering Authorities is accounted for as SP income in the turnover note 2. The related support costs are matched against this income in the same note. Support charges included in the rent are included in the income and expenditure from social housing lettings note 3 and matched against the relevant costs. Loan finance issue costs These are written off evenly over the life of the related loan. Loans are stated in the Balance Sheet at the amount of the net proceeds after issue, plus increases to account for any subsequent amounts written off. Where loans are redeemed during the year, any redemption penalty and any connected loan finance issue costs, are recognised in the income and expenditure account in the year in which the redemption took place. 16

19 1. PRINCIPAL ACCOUNTING POLICIES (continued) Property managed by agents Where the RP carries the majority of the financial risk on property managed by agents, all the income and expenditure arising from the property is included in the Income and Expenditure Account. Where the agency carries the majority of the financial risk, the Income and Expenditure Account includes only that income and expenditure which relates solely to the RP. In both cases, the assets and associated liabilities are included in the RP s balance sheet. Properties for sale Properties developed for outright sale are included in Turnover and Cost of Sales. Properties developed for outright sale are included in current assets as they are intended to be sold. Loan interest costs The full costs of deferred interest rate and indexation loans are shown in the Income and Expenditure Account. Current asset investments These are carried at market value. Derivatives The RP uses interest rate swaps to vary the risk profile of particular loans. The cost of these derivatives are expensed over the life of the derivative contract or the hedged loan, if shorter. Interest differentials on derivatives are recognised by adjusting net interest payable. Homebuy The RP operates this scheme by lending a percentage of the cost to home purchasers, secured on the property. The loans are interest free and repayable only on the sale of the property. On a sale, the fixed percentage of the proceeds are repaid. The loans are financed by an equal amount of SHG. On repayment: (a) the SHG is recycled, (b) the SHG is written off, if a loss occurs, (c) the RP keeps any surplus. Development agreements The RP has entered into a number of agreements to develop properties for other RPs. In these cases, the properties are dealt with in current assets under housing properties and stock for sale (after deducting any related SHG). When sold, the sale proceeds are included in Turnover and Cost of Sales. Agreements to improve existing properties Where the RP has entered into agreements to purchase property from a third party and subsequently enters into a sub-contracting agreement to carry out improvement works to the properties, the related assets and liabilities are shown at gross values unless the right of net settlement exists. Business combinations Acquisitions of other entities in the social housing sector that are in substance a gift to RP Limited are treated as non-reciprocal transfers where the substance of the transaction is gifting control of one entity to another. These are also known as non-exchange transfers. In this case the fair value of the gifted assets and liabilities are recognised as a gain or loss in the income and expenditure account in the year of the transaction. 17

20 2. TURNOVER, COST OF SALES, OPERATING COSTS AND OPERATING SURPLUS SOCIAL HOUSING LETTINGS (Note 3) 2013 Turnover Cost of Operating Operating sales costs surplus OTHER SOCIAL HOUSING ACTIVITIES Current asset property sales Charges for support services Other: e.g. Development services Managed associations Rechargeable work Memo only: NON-SOCIAL HOUSING ACTIVITIES e.g. Lettings Properties developed for outright sale Other TOTAL SOCIAL HOUSING LETTINGS 2012 Turnover Cost of Operating Operating sales costs surplus OTHER SOCIAL HOUSING ACTIVITIES Current asset property sales Charges for support services Other: e.g. Development services Managed associations Rechargeable work Memo only: NON-SOCIAL HOUSING ACTIVITIES e.g. Lettings Properties developed for outright sale Other TOTAL Note: where an RP transacts with a non-regulated element of the business including an associate, subsidiary or other group member which is not an RP, the accounts shall: describe the basis of any significant apportionment, recharge or allocation of revenues, costs, assets or liabilities between the RP and other party specify in aggregate the revenues, costs, assets or liabilities which have been apportioned or allocated specify which associates, subsidiaries or other group members have been involved in the apportionment or allocation See note 3(a) for a detailed analysis of the social housing lettings and note 3(b) for a detailed analysis of nonsocial housing activities 18

21 3(a) INCOME AND EXPENDITURE FROM SOCIAL HOUSING LETTINGS General Housing Supported housing and housing for older people Other eg. Shared Ownership Total 2013 Total 2012 INCOME Rent receivable net of identifiable service charge Service charge income Rents receivable Other revenue grants Other income from social housing lettings TOTAL INCOME EXPENDITURE Management Services Routine maintenance Planned maintenance Major repairs expenditure Rent losses from bad debts Depreciation of Housing Properties Impairment of Housing Properties Other Costs eg: Lease charges Support Operation costs on social housing lettings OPERATING SURPLUS / (DEFICIT) ON SOCIAL HOUSING LETTINGS ACTIVITIES Void losses Note: Rent receivable should be stated net of any void losses 19

22 3(b) TURNOVER FROM NON-SOCIAL HOUSING ACTIVITIES Lettings Residential Care Homes Registered Nursing Homes Market Renting Other 4. INTEREST PAYABLE AND SIMILAR CHARGES On loans repayable within five years On loans wholly or partly repayment in more than five years Costs associated with financing Less: Interest capitalised Total The weighted average interest on borrowings of % (2012: %) was used for calculating capitalised interest. 5. SALE OF PROPERTIES Property Developed for other RPs Shared Ownership Staircasing sales Others Total 2013 Total 2012 Proceeds of sales Less: Costs of sales Surplus Nil 6. SURPLUS FOR THE YEAR Is stated after charging:- Auditors remuneration (excluding VAT) In their capacity as auditors In respect of other services Operating lease payments Impairment losses Depreciation of housing properties Depreciation of other fixed assets Surplus on sale of fixed assets 20

23 7. TANGIBLE FIXED ASSETS COST At start of the year as previously stated Prior year adjustment At start of the year restated Additions to new properties Capitalisation of components Disposals Transfers Housing Properties For Letting Completed Housing Properties for letting Under Construction Shared Ownership Properties Completed Shared Ownership Properties Under Construction Property furniture and equipment Office Equipment Non-Social Housing Properties Total At end of the year DEPRECIATION AND IMPAIRMENT At start of the year Prior year adjustment Charge for year Impairment losses Disposals At end of the year NET BOOK VALUE AT END OF THE YEAR Net book value at start of the year Note 1: an additional column for housing property components can be inserted and non-social housing fixed assets can be shown in a separate table Note 2: the Accounting Direction para 27 suggests that impairment provision should be shown separately 21

24 7. TANGIBLE FIXED ASSETS (continued) SOCIAL HOUSING GRANTS Housing Properties For Lettings Completed Housing Properties Under Construction Shared Ownership Properties Completed Shared Ownership Properties Under Construction Property Furniture and Equipment Office Equipment Non-Social Housing Properties Total At start of the year Additions Disposals Transfers At end of the year OTHER CAPITAL GRANTS At start of the year Additions Disposals At end of the year TOTAL GRANTS at end of year TOTAL GRANTS at start of year Housing Properties comprise: Freeholds Long leaseholds Short leaseholds Note 1: an additional column for housing property components can be inserted and non-social housing fixed assets can be shown in a separate table Cost of properties includes (2012: ) for direct administrative costs capitalised during the year. Works to existing properties in the year: Capitalised as above Expensed Total for year. 22

25 8. HOUSING PROPERTIES FOR SALE Development for other RPs Shared ownership properties: Completed Under construction Private sale properties: Completed Under construction DEBTORS Amounts falling due within one year Rent arrears Less: provision for bad debts Social Housing Grants receivable Other debtors Prepayment and accrued income Amounts falling due after one year Other debtors Prepayments and accrued income 10. CURRENT ASSET INVESTMENTS Investments at valuation Listed on a recognised investment exchange Unlisted investments Historic cost of investments The valuation of the unlisted investments are the Board s best estimate of their realisable value. 11. CASH AT BANK AND SHORT TERM DEPOSITS Money market investments Cash at bank In the above are balances totalling (2012: ) which are charged to certain lenders and balances totalling. (2012:....) which are held in trust for shared ownership leaseholders. 23

26 12. CREDITORS Amounts falling due within one year Loans and overdrafts Rents paid in advance Trade creditors Service charge balances due to leaseholders Other taxation and social security payable Accruals and deferred income Social Housing Grant not spent Loan repayments in one year or less Recycled Capital Grant Fund Disposal proceeds fund 13. CREDITORS Amounts falling due after more than one year Loans repayable by instalments:- In one year or more but less than two years In two years or more and less than five years In five years or more Loans not repayable by instalments:- In one year or more but less than two years In two years or more and less than five years In five years or more Less: loan issue costs Recycled capital grant fund Disposal proceeds fund Leaseholder sinking funds These loans are secured by specific charges on the RPs housing properties and floating charges on all of the RPs assets and are repayable at varying rates of interest. 24

27 13. CREDITORS (continued) The interest rate profile of the RP at 31 March 2013 was:* Total m Variable Rate m Fixed rate m Weighted Average rate % Weighted average term of fixing in years Instalment loans Non-instalments loans At 31 March 2013 the RP has the following borrowing facilities:* Undrawn committed facilities Undrawn facilities m *This information is only required if the RP has debt securities which are listed or publicly traded. However, these disclosures are good practice. During the year the RP has entered into one ISDA swap on debt of 10m. The RP has entered into ISDA swaps on debt totalling 85m at the year end all of which is to fix the interest rate at rates varying between 4.5% and 5.5% for periods from 10 to 20 years. 25

28 14. PROVISION FOR LIABILITIES AND CHARGES 2013 At start of the year Transfer from income and expenditure account Utilised in the year At the end of the year These provisions are for the estimated end of lease liabilities of certain properties managed by the RP. 15. NON-EQUITY SHARE CAPITAL Allotted Issued and Fully Paid At start of the year Issued during the year At end of the year The shares do not have a right to any dividend or distribution in a winding-up, and are not redeemable. Each share has full voting rights. 16. RESERVES At start of the year as previously stated Prior year adjustment At start of year as restated Transfer for the year Surplus for the year Increase in value Revaluation of Investments Designated Reserve Revenue Total At end of the year Although under its rules the RP does not trade for profit, its financial affairs are planned so that each year income exceeds expenditure. The annual surplus is vital to enable the RP to meet its commitments to providers of loan finance, continue to raise further loan finance and have reserves to provide for unexpected situations. The Board regularly reviews the RP s finances to determine the minimum amount of reserves required for day-to-day management and to provide for the future. Any amounts over and above this minimum are invested in the provision of social housing. The majority of the RP s reserves are not normally cash backed. 17. RECYCLED CAPITAL GRANT FUND AND DISPOSAL PROCEEDS FUND At start of the year Grants recycled Interest accrued New build Major repairs DPF RCGF At end of year 26

29 18. CAPITAL COMMITMENTS Capital expenditure that has been contracted for but has not been provided for in the financial statements Capital expenditure that has been authorised by the committee of management but has not yet been contracted for The RP expects these commitments to be financed with: Social Housing Grant Proceeds from the sales of properties Committed loan facilities The above figures include the full cost of shared ownership properties contracted for. 19. PENSION OBLIGATIONS RP Ltd participates in the Social Housing Pension Scheme (SHPS). SHPS is a multi-employer defined benefit scheme. The Scheme is funded and is contracted out of the state scheme. The association participates in a defined benefit scheme for salaried staff, the Social Housing Pension Scheme (SHPS). In addition the association participates in the Pensions Trust s Growth Plan as an AVC investment option for members of SHPS. Social Housing Pension Scheme The association participates in the Social Housing Pension Scheme (SHPS). The scheme is funded and is contracted out of the state scheme. SHPS is a multi-employer defined benefit scheme. Employer participation in the Scheme is subject to adherence with the employer responsibilities and obligations as set out in the SHPS House Policies and Rules Employer Guide The Scheme operated a single benefit structure, final salary with a 1/60 th accrual rate, to 31 March From April 2007 there are three benefit structures available, namely: Final salary with a 1/60 th accrual rate. Final salary with a 1/70 th accrual rate. Career average revalued earnings with a 1/60 th accrual rate. From April 2010 there are a further two benefit structures available, namely: Final salary with a 1/80 th accrual rate. Career average re-valued earnings (CARE) with a 1/80 th accrual rate. An employer can elect to operate different benefit structures for their active members (as at the first day of April in any given year) and their new entrants. An employer can only operate one open benefit structure at any one time. An open benefit structure is one which new entrants are able to join. The association has elected to operate the final salary with a 1/70 th accrual rate benefit structure for active members as at 31 st March 2007 and the career average revalued earnings with a 1/60 th accrual rate benefit structure for new entrants from 1 st April This does not reflect any benefit structure changes made from April

30 19. PENSION OBLIGATIONS (continued) The Trustee commissions an actuarial revaluation of the Scheme every 3 years. The main purpose of the valuation is to determine the financial position of the Scheme in order to determine the level of future contributions required, in respect of each benefit structure, so that the Scheme can meet its pension obligations as they fall due. From April 2007 the split of the total contribution rate between member and employer is set at individual employer level, subject to the employer paying no less than 50% of the total contribution rate. The actuarial valuation assesses whether the Scheme s assets at the valuation date are likely to be sufficient to pay the pension benefits accrued by members as at the valuation date. Asset values are calculated by reference to market levels. Accrued pension benefits are valued by discounting expected future benefit payments using a discount rate calculated by reference to the expected future investment returns. During the accounting period The association paid contributions at the rate of 12%. Members contribute either 7.7% of salary to the final salary scheme or 6.5% to the career average re-valued earnings scheme. As at the balance sheet date there were 58active members of the Schemes employed by The association. The annual pensionable payroll in respect of these members was 1.49m. The association continues to offer membership of the career average re-valued earnings scheme to its employees. It is not possible in the normal course of events to identify on a reasonable and consistent basis the share of underlying assets and liabilities belonging to individual participating employers. This is because the scheme is a multi-employer scheme where the scheme assets are co-mingled for investment purposes, and benefits are paid from total scheme assets. Accordingly, due to the nature of the Plan, the accounting charge for the period under FRS17 represents the employer contribution payable. The last formal valuation of the Scheme was performed as at 30 th September 2011 by a professionally qualified actuary using the Projected Unit Method. The market value of the Scheme s assets at the valuation date was 1,527 million. The valuation revealed a shortfall of assets compared with the value of liabilities of 663 million, equivalent to a past service funding level of 70%. The financial assumptions underlying the valuation as at 30 th September 2011 were as follows: % pa Valuation Discount Rates Pre-retirement 7.8 Non Pensioner Post retirement 6.2 Pensioner Post retirement 5.6 Pensionable earnings growth 4.7 Price inflation 3.2 Pension Increases Pre 88 GMP 0.0 Post 88 GMP 2.8 Excess over GMP 3.0 Expenses for death in service insurance, administration and PPF levy are included in the contribution rate. The valuation was carried out using the following demographic assumptions: Mortality pre-retirement PA92 Year of Birth, long cohort projection, minimum improvement 1%pa Mortality post retirement 90% S1PA Year of Birth, long cohort projection, minimum improvement 1%pa 28

31 19. PENSION OBLIGATIONS (continued) The long-term joint contribution rates that will apply from April 2010 required from employers and members to meet the cost of future benefit accrual were assessed at: Benefit structure Long-term joint contribution rate (% of pensionable salaries) Final salary with a 1/60 th accrual rate 17.8 Final salary with a 1/70 th accrual rate 15.4 Career average revalued earnings with a 1/60 th accrual rate 14.9 If an actuarial valuation reveals a shortfall of assets compared to liabilities the Trustee must prepare a recovery plan setting out the steps to be taken to make up the shortfall. Following consideration of the results of the actuarial valuation it was agreed that the shortfall of 663 million would be dealt with by the payment of deficit contributions of 7.5% of pensionable salaries, increasing each year in line with salary growth assumptions, from 1 April 2010 to 30 September 2020, dropping to 3.1% from 1 October 2020 to 30 September Pensionable earnings at 30 September 2011 are used as the reference point for calculating these deficit contributions. These deficit contributions are in addition to the long-term joint contribution rates set out in the table above. Employers that participate in the Scheme on a non-contributory basis pay a joint contribution rate (i.e. a combined employer and employee rate). Employers that have closed the Scheme to new entrants are required to pay an additional employer contribution loading of 3.0% to reflect the higher costs of a closed arrangement. A small number of employers are required to contribute at a different rate to reflect the amortisation of a surplus or deficit on the transfer of assets and past service liabilities from another pension scheme into the SHPS Scheme. Employers joining the Scheme after 1 st October 2002 that do not transfer any past service liabilities to the Scheme pay contributions at the ongoing future service contribution rate. This rate is reviewed at each valuation and applies until the second valuation after the date of joining the Scheme, at which point the standard employer contribution rate is payable. Contribution rates are changed on the 1 st April that falls 18 months after the valuation date. A copy of the recovery plan, setting out the level of deficit contributions payable and the period for which they will be payable, must be sent to the Pensions Regulator. The Regulator has the power under Part 3 of the Pensions Act 2004 to issue scheme funding directions where it believes that the actuarial valuation assumptions and / or recovery plan are inappropriate. For example the Regulator could require that the Trustee strengthens the actuarial assumptions (which would increase the scheme liabilities and hence impact on the recovery plan) or impose a schedule of contributions on the Scheme (which would effectively amend the terms of the recovery plan). The Regulator has reviewed the recovery plan for the SHPS Scheme and confirmed that, in respect of the September 2005 actuarial valuation, it does not propose to issue any scheme funding directions under Part 3 of the Pensions Act A copy of the recovery plan in respect of the September 2011 valuation will be forwarded to the Regulator in due course. As a result of pension scheme legislation, there is a potential debt on the employer that could be levied by the Trustee of the Scheme. The debt is due in the event of the employer ceasing to participate in the Scheme or the Scheme winding up. The association has no plans to leave the scheme and accordingly has made no provision for liability. The debt for the Scheme as a whole is calculated by comparing the liabilities for the Scheme (calculated on a buy-out basis i.e. the cost of securing benefits by purchasing annuity policies from an insurer, plus an allowance for expenses) with the assets of the Scheme. If the liabilities exceed assets there is a buy-out debt. 29

32 19. PENSION OBLIGATIONS (continued) The leaving employer s share of the buy-out debt is the proportion of the Scheme s liability attributable to employment with the leaving employer compared to the total amount of the Scheme s liabilities (relating to employment with all the currently participating employers). The leaving employer s debt therefore includes a share of any orphan liabilities in respect of previously participating employers. The amount of the debt therefore depends on many factors including total Scheme liabilities, Scheme investment performance, the liabilities in respect of current and former employees of the employer, financial conditions at the time of the cessation event and the insurance buy-out market. The amounts of debt can therefore be volatile over time. The association has been notified by the Pensions Trust of the estimated employer debt on withdrawal from the Social Housing Pension Scheme based on the financial position of the Scheme as at [date]. As of this date the estimated employer debt for the association was X. Growth Plan The association participates in the Pensions Trust s Growth Plan. The plan is funded and is not contracted out of the state scheme. The Growth Plan is a multi-employer pension Plan. Contributions paid into the Growth Plan up to and including September 2001 were converted to defined amounts of pension payable from Normal Retirement Date. From October 2001 contributions were invested in personal funds which have a capital guarantee and which are converted to pension on retirement, either within the Growth Plan or by the purchase of an annuity. The rules of the Growth Plan allow for the declaration of bonuses and/or investment credits if this is within the financial capacity of the Plan assessed on a prudent basis. Bonuses/investment credits are not guaranteed and are declared at the discretion of the Plan s Trustee. The Trustee commissions an actuarial valuation of the Growth Plan every 3 years. The purpose of the actuarial valuation is to determine the funding position of the Plan by comparing the assets with the past service liabilities as at the valuation date. Asset values are calculated by reference to market levels. Accrued past service liabilities are valued by discounting expected future benefit payments using a discount rate calculated by reference to the expected future investment returns. The rules of the Growth Plan give the Trustee the power to require employers to pay additional contributions in order to ensure that the statutory funding objective under the Pensions Act 2004 is met. The statutory funding objective is that a pension scheme should have sufficient assets to meet its past service liabilities, known as Technical Provisions. If the actuarial valuation reveals a deficit, the Trustee will agree a recovery plan to eliminate the deficit over a specified period of time either by way of additional contributions from employers, investment returns or a combination of these. The rules of the Growth Plan state that the proportion of obligatory contributions to be borne by the Member and the Member s Employer shall be determined by agreement between them. Such agreement shall require the Employer to pay part of such contributions and may provide that the Employer shall pay the whole of them. The association did not pay any contributions during the accounting period. Members paid contributions at a rate of their choice. As at the balance sheet date there were 5 active members of the Plan employed by the association. The association continues to offer membership of the Plan to its employees as an AVC investment option. It is not possible in the normal course of events to identify on a reasonable and consistent basis the share of underlying assets and liabilities belonging to individual participating employers. Growth Plan is a multi-employer scheme where the scheme assets are co-mingled for investment purposes, and benefits are paid from the total scheme assets. Accordingly, due to the nature of the Plan, the accounting charge for the period under FRS17 represents the employer contribution payable. The valuation results at [date] have now been completed and will be formalised shortly. The valuation of the Scheme was performed by a professionally qualified actuary using the Projected Unit Method. The market value of the Scheme s assets at the valuation date was 742 million and the Plan s Technical Provisions (i.e. past service liabilities) were 771 million. The valuation therefore revealed a shortfall of assets compared with the value of liabilities of 29 million, equivalent to a funding level of 96%. 30

33 19. PENSION OBLIGATIONS (continued) The financial assumptions underlying the valuation as at 30 th September 2011 were as follows: % per annum Investment return pre retirement 7.6 Investment return post retirement Actives/Deferred Pensioners Bonuses on accrued benefits 0.0 Rate of price inflation 3.2 In determining the investment return assumptions the Trustee considered advice from the Scheme Actuary relating to the probability of achieving particular levels of investment return. The Trustee has incorporated an element of prudence into the pre and post retirement investment return assumptions; such that there is a 60% expectation that the return will be in excess of that assumed and a 40% chance that the return will be lower than that assumed over the next 10 years. If an actuarial valuation reveals a shortfall of assets compared to liabilities the Trustee must prepare a recovery plan setting out the steps to be taken to make up the shortfall. In view of the small funding deficit and the level of prudence implicit in the assumptions used to calculate the Plan liabilities the Trustee has prepared a recovery plan on the basis that no additional contributions from participating employers are required at this point in time. In reaching this decision the Trustee has taken actuarial advice and has been advised that the shortfall of 29 million (as at 30 th September 2011) will be cleared within 10 years if the investment returns from assets are in line with the best estimate assumptions. Best estimate means that there is a 50% expectation that the return will be in excess of that assumed and a 50% expectation that the return will be lower than that assumed over the next 10 years. These best estimate assumptions are 8.4% per annum pre retirement, 5.1% per annum post retirement (actives and deferred) and 5.6% per annum post retirement (pensioners). A copy of the recovery plan must be sent to the Pensions Regulator. The Regulator has the power under Part 3 of the Pensions Act 2004 to issue scheme funding directions where it believes that the actuarial valuation assumptions and/or recovery plan are inappropriate. For example the Regulator could require that the Trustee strengthens the actuarial assumptions (which would increase the scheme liabilities and hence impact on the recovery plan) or impose a schedule of contributions on the Scheme (which would effectively amend the terms of the recovery plan). A copy of the recovery plan in respect of the September 2011 valuation will be forwarded to the Pensions Regulator in due course. The next full actuarial valuation will be carried out as at 30 th September Following a change in legislation in September 2005 there is a potential debt on the employer that could be levied by the Trustee of the Plan. The Trustee s current policy is that it only applies to employers with pre October 2001 liabilities in the Plan. The debt is due in the event of the employer ceasing to participate in the Plan or the Plan winding up. The association has no plans to leave the scheme and accordingly has made no provision for liability. The debt for the Plan as a whole is calculated by comparing the liabilities for the Plan (calculated on a buy-out basis i.e. the cost of securing benefits by purchasing annuity policies from an insurer, plus an allowance for expenses) with the assets of the Plan. If the liabilities exceed assets there is a buy-out debt. The leaving employer s share of the buy-out debt is the proportion of the Plan s pre October 2001 liability attributable to employment with the leaving employer compared to the total amount of the Plan s pre October 2001 liabilities (relating to employment with all the currently participating employers). The leaving employer s debt therefore includes a share of any orphan liabilities in respect of previously participating employers. The amount of the debt therefore depends on many factors including total Plan liabilities, Plan investment performance, the liabilities in respect of current and former employees of the employer, financial conditions at the time of the cessation event and the insurance buy-out market. The amounts of debt can therefore be volatile over time. The association has been notified by the Pensions Trust of the estimated employer debt on withdrawal from the Plan based on the financial position of the Plan as at [date]. As of this date the estimated employer debt for the association was X. 31

34 20. DIRECTORS EMOLUMENTS The aggregate emoluments paid to or receivable by nonexecutive Directors and former Directors. The aggregate emoluments paid to or receivable by executive Directors and former Directors The emoluments paid to the highest paid Director excluding pension contributions: The aggregate amount of any compensation paid to Directors or former Directors during the period of account. The aggregate amount of Directors or past Directors pensions, excluding amounts payable under a properly funded pension scheme. The aggregate amount of any consideration payable to or receivable by third parties for making available the services of a Director. The Chief Executive is an ordinary member of the pension scheme. The pension scheme is a final salary scheme funded by annual contributions by the employer and employee. No enhanced or special terms apply. There are no additional pension arrangements. A contribution by the RP of (2012: ) was paid in addition to the personal contributions of the Chief Executive. Directors are defined as the members of the Board, the Chief Executive and any other person who is a member of the Senior Management Team or its equivalent. 21. EMPLOYEE INFORMATION The average number of persons employed during the year expressed in full time equivalents (35 hours per week) was: Office staff Wardens, caretakers and cleaners Staff costs (for the above persons) Wages and salaries Social Security costs Other pension costs Aggregate number of full time equivalent staff whose remuneration exceeded 60,000 in the period: 60,000-70,000 X 70,000-80,000 Y 80,000-90,000 Z 32

35 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH CASH FLOW STATEMENT NOTES Returns on investments and servicing of finance Interest Received Interest paid (including capitalisation) Financing Issue of ordinary shares Loans received Loans repaid Analysis of net debt Cash in hand, at bank Overdrafts Current asset investments Debt due within 1 year Debt due after 1 year TOTAL At start Cashflows At end Reconciliation of cash movements Money market investments Short term cash deposits At start Cashflows At end TOTAL 23. OPERATING LEASES The RP holds properties and office equipment under non-cancellable operating leases. At the end of the year the RP had annual commitments under these leases as follows: Land and buildings which expire:- Leases expiring within the next year Leases expiring in the second to fifth year Leases expiring in more than five years Others, which expire: - Expiring within the next year Expiring in the second to fifth year Expiring in more than five years 33

36 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH TAXATION STATUS The Association has charitable status. 25. UNITS/BEDSPACES Social rent Affordable rent Social Housing Accommodation Under development at end of year General needs housing Supported housing and housing for older people Shared ownership accommodation Under management at end of year General needs housing Supported housing and housing for older people Shared ownership accommodation Residential Care Homes Registered Care Homes Temporary social housing Managed for other bodies Non-Social Housing Under management at end of year Market renting Student accommodation 26. ACCOMMODATION MANAGED BY AGENTS The RP owns property managed by other bodies No. of units and type of accommodation: Supported housing and housing for older people Registered Care Homes 34

37 27. CONTINGENT LIABILITY The legal nature of the contingent liability not provided for and the amount or estimated amount of that liability. No security has been provided by the RP in connection with that liability. 28. RELATED PARTIES The following are related parties: The Board has tenant members who hold tenancy agreements on normal terms and cannot use their position to their advantage; Directors loans, if not disclosed elsewhere. Note: RPs will need to disclose relationships between parents and subsidiaries and regulated and nonregulated group or associated bodies irrespective of whether or not there have been any transactions between those related parties. 29. SOCIAL HOUSING GRANT The total accumulated SHG received or receivable at the balance sheet date from both capital and revenue sources 30. GROUP COMPANIES The group comprises the following entities: Name Incorporation and Regulated / Nonregulated Trading status ownership Market Rent Ltd Company 100% Non-Regulated Dormant Dev Co Ltd Company 100% Non-Regulated Dormant Social Enterprise Ltd IPS 100% Non-Regulated Dormant B&S Best Practice RSL Gen Best Practice accounts/nws/aj 13/03/12 35

38 Formed more than 100 years ago, accountants and business advisors Beever and Struthers have a strong notfor-profit reputation based on the provision of high quality, tailored services to the UK social housing sector. The firm is one of the UK s leading independent accountancy practices with offices in Manchester, London and Blackburn. Among its core strengths is a substantial not-for-profit division that ranks among the Top 5 providers of audit and assurance services with many of the leading UK housing associations amongst its clients. Beever and Struthers is a member of HLB International, a worldwide network of independent accounting firms and business advisors. Formed in 1969, HLB International is a global network of independent professional accounting firms and business advisers with member firms in more than 100 countries, employing almost 2,000 partners and about 14,500 staff in 500 offices and collectively generating $1.79bn in revenues. If you need any advice or assistance please contact us at any of the addresses below: Manchester St George s House Chester Road Manchester M15 4JE Tel: E: manchester@beeverstruthers.co.uk London 15 Bunhill Row London EC1Y 8LP Tel: E: london@beeverstruthers.co.uk Blackburn Central Buildings Richmond Terrace Blackburn BB1 7AP Tel: E: blackburn@beeverstruthers.co.uk Registered Auditors Beever and Struthers March 2013