Initial
Financial Appraisal
ü Understanding the balance sheet
provides an essential base for sound treasury management.
ü Strategic decision making and regular
reviews enable effective action.
ü
This process identifies the
availability of resources and the need for borrowing and forms the basis
of a suitable treasury management strategy.
The analysis of the
balance sheet identifies the cash
and non-cash items, illustrating the relationship between:
These relationships are not always understood
by local authorities.
The introduction of the
prudential system has increased
the importance of understanding the balance sheet. The prudential system
established the concept of the capital financing requirement (CFR), which
provides an indication of the Council’s external indebtedness.
The CFR, one of the
prudential indicators, is
important as it forms the basis for the Council’s strategy. This places
increased importance on the understanding of the transactions behind the
balance sheet. Butlers’ assistance to clients in this area is well
respected.
The balance
sheet is also used as the base for the revenue charge (MRP) for the
provision for repayment of general fund debt. Therefore,
accuracy
is important to ensure the charge is correct.
Moving into
the prudential system has introduced the “A” factor, which is used in the
MRP calculation. The calculation of the “A” factor has highlighted a
number of issues that have caused concern. Butlers has been in contact
with the relevant organisations in order to identify a way forward that
provides an acceptable solution to local authorities.
|