The first year of local government accounting under International Financial Reporting Standards could hardly be described as ‘plain sailing’, but despite the difficult times it has been a success. Public Finance has previously reported that English authorities coped well with the IFRS test, albeit with some late filing of accounts. Reports suggest similar success for authorities in Scotland, Wales and Northern Ireland.
However, the overall positive headline masks some underlying issues that still need to be addressed to fully embed IFRS. To help authorities do this, the CIPFA/Local Authority (Scotland) Accounts Advisory Committee Code Board is committed to ensuring that only necessary changes are introduced each year.
Therefore the principal change in the 2011/2012 Code of Practice on Local Authority Accounting in the United Kingdom (published in February 2011) was the requirement to account for heritage assets.
While practitioners have been deliberating whether the paintings hung in the civic offices or the statutes in parks are heritage assets, CIPFA/Lasaac has also been working on an in-year update to the code. This is required as a result of a number of legislative changes, such as the new Accounts and Audit Regulations in England and the requirement to produce a Remuneration Report in Scotland.
The 2011/12 update does not introduce any new accounting standard requirements for local authority practitioners, but does clarify existing ones. It is available to download from the technical pages on the CIPFA website
The 2012/13 code has been developed at the same time as the update. It consolidates the changes introduced in the update, reflects the concepts and principles of the new International Accounting Standards Board Conceptual Framework and adopts changes in accounting standards applicable at January 1, 2012.
It also encourages local authorities, when drafting the explanatory foreword to the accounts, to consider the more detailed requirements for management commentaries contained in the government’s Financial Reporting Manual.
There are no changes in relation to school assets. Although this issue was raised in last summer’s consultation on the code, there was insufficient evidence to justify any change.
Instead, CIPFA/Lasaac has created a working party on accounting for schools in local government. It will consider in more detail the complex issues involved, and how they relate to the different categories of school maintained by local authorities.
The conclusions of the working party will be brought forward into future consultations on the code. Until then, local authorities will need to account for the assets using the general asset recognition requirements in the code.
Following the first year of IFRS, CIPFA/Lasaac has set up two reviews to run concurrently. The first is a post-implementation review to consider whether there are areas of the code where guidance could be improved or clarified. For example, there have been a number of comments on the length and complexity of local authorities’ financial statements. The post-implementation review will consider how the code can address this issue, building on the simplification work already done during the preparation of the original IFRS-based code and recent CIPFA work in summary reporting. It will also consider external reports such as the Financial Reporting Council’s Cutting clutter and the Audit Commission’s Let’s be clear.
However, one of the clearest statements that the code already makes on this issue is that the accounts are structured to convey crucial messages to users about the authority’s finances. Material transactions are to be given prominence and disclosures need not be made if the information is not material. Obvious statements perhaps, and ones largely derived from IFRS itself, but clear encouragement for authorities to consider carefully the materiality of information presented in the financial statements.
The second review is a review of the Code Board itself, which is concerned to ensure that it continues to meet the needs of its stakeholders. It will seek views on whether or not its governance arrangements and the processes and procedures it adopts to develop the IFRS-based accounting code could be improved.
CIPFA/Lasaac is looking for feedback on all the issues raised in this article.
As ever, change is the one constant
Sarah Sheen wrote this feature on behalf of CIPFA. She is a CIPFA associate and secretary to the CIPFA/Lasaac Local Authority Accounting Code Board. Please send comments to [email protected]
