County council's accounts get the green light after loan deal caused delay

County hall's reserves would have taken a hit if auditors had decided a loan arrangement had been wrongly recorded in the accounts.
County hall's reserves would have taken a hit if auditors had decided a loan arrangement had been wrongly recorded in the accounts.
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Lancashire County Council’s accounts are set to be signed off, after the process was previously delayed by a complex loan deal.

The authority’s Audit, Risk and Governance Committee was unable to approve the document last month, because external auditors had asked for more time to give their opinion on the arrangement.

READ MORE >>> Complex loan deal could hit county's reserves
The loan - known as a Lender Option Borrower Option (LOBO) - is so complicated that even auditors themselves had to seek advice on how it should be treated in the accounts.

But now accountancy firm Grant Thornton has concluded that the £50m deal had been correctly recorded on the council’s books since it was entered into in 2010.

Had a different conclusion been reached, it could have had a “significant” impact on the authority’s already stretched reserves, Interim Chief Executive Angie Ridgwell said in July.

The type of LOBO taken out by county hall saw interest rates on the loan decrease when the market rate went up - and, crucially, increase when the market rate fell.

Auditors queried whether the potential impact of that arrangement should be shown in the accounts only when rates actually changed - or factored into the liability of the loan from the outset.

Lancashire County Council had opted for the first interpretation - a judgement which external auditors have now described as “reasonable”.

Grant Thornton said it still preferred the alternative method of registering the loan, but would not be proposing any amendments to the council’s accounts.

Speaking after the revised judgement was issued, Angie Ridgwell said: “I am pleased that the external auditors have agreed that the accounting treatment we have applied to this particular loan since it was taken out in 2010 remains appropriate. It is good to be able to now sign off our accounts after this short delay."

The Audit, Risk and Governance Committee will now hold a special meeting next week, where they are expected to approve the county’s accounts for 2017/18.