Annual Report & Accounts 2017/18

98 NI Water Annual Report and Accounts 2017/18 Statutory Accounts Notes to the Statutory accounts 1 Key accounting policies (a)Reporting entity Northern Ireland Water Limited (the Company) is a company domiciled in Northern Ireland. The address of the Company’s registered office is Westland House, 40 Old Westland Road, Belfast, BT14 6TE. These consolidated financial statements comprise the Company and its subsidiaries (together referred to as the ‘Group’). The Group is primarily involved in the supply of water and the collection and treatment of sewerage in Northern Ireland. The Company is wholly owned by the Department for Infrastructure (DfI). (b)Basis of preparation Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs) and with the Companies Act 2006. The accounting policies, as set out below, have, unless otherwise stated, been consistently applied to all the years presented. (c) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the defined benefit liability which is recognised as the fair value of the plan assets less the present value of the defined benefit obligation, the revaluation of certain financial liabilities (under IFRS) to fair value, including derivative instruments, and the investments which are held at fair value through Other Comprehensive Income. The defined benefit pension liability and derivative financial instrument represents a material item in the statement of financial position (SOFP). The consolidated financial statements have been prepared on a going concern basis notwithstanding the net current liabilities at 31 March 2018. The Directors consider it appropriate to adopt the going concern approach given the regulatory, financial and governance environment within which the parent Company operates as described below. NI Water Limited is subject to economic regulation rather than market competition. As a result, NI Water Limited provides water and sewerage services in Northern Ireland under the conditions in its Licence granted by the Utility Regulator and underpinned by the Water and Sewerage Services (Northern Ireland) Order 2006 which designates Northern Ireland Water Limited as the sole Water and Sewerage Undertaker for Northern Ireland. Following the NI Assembly decision to defer the introduction of domestic water charges, NI Water Limited receives funding by means of a subsidy provided by Dfl. Due to the level of subsidy, NI Water Limited is also designated as a NDPB and is subject to public sector spending rules. As required by the Licence, NI Water Limited submitted a Business Plan to the Utility Regulator in March 2014 setting out its proposals for the price control period from 1 April 2015 to 31 March 2021 (PC15). The Utility Regulator published a Draft Determination for consultation in July 2014 and a Final Determination in December 2014. The Final Determination establishes the funding required by NI Water Limited to meet Departmental targets contained within the Social and Environmental Guidance and requires NI Water Limited to deliver enhanced regulatory outputs, continued investment, improvement in service and efficiencies. On 10 February 2015, NI Water Limited advised the Utility Regulator that the Board would, on balance, have been willing to accept the PC15 Final Determination subject to Public Expenditure funding to the levels established by the PC15 Final Determination, an appropriate risk mitigation mechanism and other flexibilities. However a significant shortfall in Public Expenditure funding in 2015/16 and no clarity of funding for the period beyond 2015/16, meant the Board had no option but to not accept the PC15 Final Determination in the circumstances. NI Water Limited engaged positively with the Utility Regulator and the Department to agree changes to 2015/16 and 2016/17 regulatory outputs due to reductions in Public Expenditure funding. Following the PC15 Mid-Term Review, the Utility Regulator concluded: • based on reasonable forward planning scenarios for capital investment, NI Water Limited should have sufficient capital budget to deliver all of its defined PC15 outputs within the PC15 6 year period;