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					Treasury Officer of Accounts David Thomson Central Finance Group Rathgael House Balloo Road BANGOR BT19 7NA Tel No: 028 9185 8150 (x 68150) Fax No: 028 9185 8175 email: david.thomson@dfpni.gov.uk and jill.downie@dfpni.gov.uk

FD (DFP) 08/08 18 June 2008 Copy Distribution List Below: ACCOUNTING TREATMENT - EQUAL PAY Purpose of this letter 1. The purpose of this letter is to advise you of the required accounting treatment and disclosures in relation to the equal pay issue that was the subject of the recent Ministerial announcement.

Applicability

2.

This letter applies only to NICS departments and their agencies. Other employers are not directly affected by the announcement.

Summary and Action

3.

In reaching a conclusion it is recognised that, in common with all accounting decisions that require the use of professional judgement, there may be alternative interpretations that would lead to different outcomes. The proposed treatment provides transparency and

accountability to the Assembly and public through disclosure, without requiring premature assessment of the amount that may be payable at this early stage in the settlement process.
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4.

It is DFP’s view that the Ministerial announcement constitutes a nonadjusting post balance sheet event and that disclosure is required in the post balance sheet events notes of Departmental, agency and PCSPS(NI) accounts. W ording is provided at Annex A. Finance

Directors are asked to circulate this letter to staff involved in the preparation of the relevant accounts.

5.

The contents of this letter have been agreed with the Northern Ireland Audit Office.

Background and relevant accounting standards

6.

In an interview on 16 May 2008, the former Minister for Finance and Personnel announced that around 9,000 civil servants at AA and AO grades would be entitled to be reimbursed for the period of the last six years. He also noted that there are potential implications for pensions.

7.

In the light of the above, DFP have considered the implications for accounts. FRS 12 requires three conditions to be met in order for a provision to be made:   

An entity has a present obligation as the result of a past event; It is probable that a transfer of economic benefits will be required to settle the obligation; and A reliable estimate can be made of the amount of the obligation.

8.

A contingent liability is disclosed if an entity has a present obligation as the result of a past event and either:  

It is possible, but not probable that a transfer of economic benefits will be required to settle the obligation; or The amount of the obligation cannot be measured with sufficient reliability (this will happen in “extremely rare” circumstances only).
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9.

FRS 12 further states that contingent assets should not be recognised, and should only be disclosed where an inflow of economic benefits is probable.

10. FRS 21 defines two types of events after the balance sheet date:  

Those that provide evidence of conditions that existed at the balance sheet date (adjusting events); and Those that are indicative of conditions that arose after the balance sheet date (non-adjusting events);

In relation to non-adjusting events after the balance sheet date, the FRS requires that the amounts in the accounts are not amended, but that disclosure is given where the events are material. Accounting Treatment – Departments and Agencies

11. The main issue in determining the accounting treatment is whether or not a past event that creates a present obligation has occurred at the balance sheet date. This depends very much on the interpretation of the meaning of the standard and is a matter for professional judgement. 12. Having considered a number of possible alternatives for the “past event” referred to by FRS 12, it is DFP’s view that it is the announcement by the former Minister of Finance and Personnel, which creates a constructive obligation on the part of the NICS to make compensation payments to AAs and AOs. As this event is after the balance sheet date, the first condition of FRS 12 has not been met and there is no requirement to make a provision or disclose a contingent liability under FRS 12.

13. It follows from the above that, as the obligation did not exist at the balance sheet event, it is a non-adjusting post balance sheet event. Due
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to the materiality of the amounts involved, DFP considers that disclosure is required. Wording is provided at Annex A for inclusion in the post balance events notes of Departmental and agency accounts. Accounting Treatment – PCSPS(NI)

14. As a consequence of the above, the receipt of pension contributions by the PCSPS(NI) becomes a contingent asset at the time of the announcement, dependent on whether such payments are pensionable. In addition, there could be implications for computation of the pension scheme liabilities as a result of any changes to staff salaries that may follow from the announcement. Similar to the position for Departments and agencies, DFP consider that the materiality of the amounts involved requires disclosure as a non-adjusting post balance sheet event. A note is also provided at Annex A for the PCSPS(NI) accounts.

Contacts

15. Queries on the accounting treatment should be addressed to Brigitte Worth (02891 858025, x 68025, brigitte.worth@dfpni.gov.uk) or Peter O’Sullivan (02891 858133, x 68133, peter.o’sullivan@dfpni.gov.uk). Yours sincerely

DAVID THOMSON
Copy Distribution List: Richard Pengelly Ciaran Doran Brigitte Worth Peter O’Sullivan Louise Mason Michael Daly Supply Grade 5s

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ANNEX A Post Balance Sheet Events Note Department and Agency Accounts Since the balance sheet date, the former Minister for Finance and Personnel announced measures to address equal pay issues in the Northern Ireland Civil Service. This is likely to involve the payment of back pay in excess of £100m to some 9,000 civil servants across Northern Ireland Civil Service Departments and their agencies. Details of the final settlement will be progressed over the coming months and an exact figure will not be available until this process has concluded. PCSPS(NI) Accounts Since the balance sheet date, the former Minister for Finance and Personnel announced measures to address equal pay issues in the Northern Ireland Civil Service. This is likely to involve the payment of back pay in excess of £100m to some 9,000 civil servants across Northern Ireland Civil Service Departments and their agencies. It is possible that these payments may be regarded as pensionable and this, together with the amounts of any pension contributions payable to the scheme, will be determined as details of the settlement are further progressed. In addition, there are potential implications for the computation of scheme liabilities as a result of any changes to staff salaries that may follow from the announcement. It is not possible to assess the likely impact based on the information available at the current time.

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