Making Sense of the

Accounts

Objectives

To help you understand:

• your responsibilities in relation to financial matters

• the format of the FT’s annual report and accounts

• what the primary financial statements report

• the role of the external auditor

• Monitor’s financial risk ratings

Making Sense of the Accounts3

Governors’ responsibilities in relation to financial matters

Financial matters

Governors’ responsibilities:

• to represent interests of members & partners in local health economy

• to receive FT’s annual report and accounts, and auditors report on accounts

- presented to governors at AGM

- opportunity to comment but not change

- informs governors about their other statutory duties

- forum for governors to ask questions

Making Sense of the Accounts5

Format of the annual report and accounts

Format of annual report and accountsAnnual report comprises:

• Directors’ report including and management commentary on the performance of the FT

• Remuneration report

• Code of Governance disclosures

• Quality report

• Sustainability, equality and diversity disclosures

Format of annual report and accountsAnnual accounts comprise:

• Foreword

• Four primary statements

- Statement of Comprehensive Income

- Statement of Financial Position

- Statement of Changes in Taxpayers’ Equity

- Statement of Cash Flows

- Notes to the accounts

• Directors’ Statement of Responsibilities

• Statement on Internal Control

• Auditor’s report

Making Sense of the Accounts8

What the primary financial statements report

What the primary financial statement reportStatement of Comprehensive Income

• records the FT’s income and expenditure for the year with any other recognised gains and losses

• includes cash items e.g. expenditure on staff and supplies, and non- cash e.g. change in value of the FT’s assets

• If income exceeds expenditure FT is in surplus, if expenditure exceeds income there is a deficit

What the primary financial statements reportStatement of Financial Position

• snapshot of the FT’s financial position at 31 March

• assets - what the FT owns or is owed,

• liabilities - what the FT owes

• taxpayers’ equity – public funds invested in the FT

What the primary financial statements reportStatement of Changes in Taxpayers’ Equity

• shows changes in Reserves & Public Dividend Capital over the year:

- Public Dividend Capital is the public sector equity finance based on the excess of assets over liabilities when the predecessor NHS Trust was established

- no prescribed format for this statement but Monitor includes an approach it its FT Annual Reporting Manual

What the primary financial statements reportStatement of Cash Flows

• summarises the cash flows in and out of the FT during the financial year

• cash flows are analyses under three headings:

- operating activities

- investing activities

- financial activities

• focus is on cash implications of FT actions

What the primary financial statements reportNotes to the Accounts

• further analysis of items on the face of the primary statements

- operating income and expenses

- property plant and equipment

• additional disclosures

- accounting policies

- critical accounting estimates and judgements

- Private Patient Income cap

- Prudential Borrowing Limit

Making Sense of the Accounts14

The role of the external auditor

The role of the external auditor

External auditors:

• satisfy themselves that the FT has:

– prepared its accounts properly

– made proper arrangement for securing economy, efficiency and effectiveness in its use of resources

• review the annual report to assess whether it is consistent with the financial statements

• report main audit findings to ‘Those Charged with Governance’ (Audit Committee)

• give an opinion to governors as to whether accounts are ‘true and fair’

Making Sense of the Accounts16

Monitor’s financial risk ratings

Monitor’s financial risk ratings

• Risk rating is an indication of the likelihood of a FT

breaching the terms of its authorisation

• Four key criteria:– achievement of financial plan– underlying performance – financial efficiency– liquidity

Objectives

To help you understand:

• your responsibilities in relation to financial matters

• the format of the FT’s annual report and accounts

• what the primary financial statements report

• the role of the external auditor

• Monitor’s financial risk ratings

Next steps

• Draft accounts ready for audit by 22 April

• Audited 2010/11 accounts and annual report due to be sent to Monitor by 7 June