By Nick Mann | 18 January 2012
Councils should make their accounts more understandable and accessible by reducing ‘clutter’ and using summary financial statements to communicate with councillors and residents, according to the Audit Commission.
In Let’s be clear, the commission says some accounts are so complex even professional local government accountants have difficulty understanding them.
It says the average length of local authority statutory accounts is 113 pages. The move to International Financial Reporting Standards in 2010/11 has, according to some, made the situation even worse, the auditors say.
It wants local authorities to work with professional bodies and auditors to address the problem urgently.
‘The story accounts tell about the financial position and financial performance of an authority must be communicated more effectively to a more generalist interested audience, including councillors and local people.’
In the short- and medium-term, those preparing accounts should ‘look critically’ at the previous year’s accounts. ‘They should identify how these accounts could be sharper and more focused before starting work on the next set,’ the briefing explains.
CIPFA and practitioners could also do more to encourage auditors and preparers of accounts to reduce clutter in statutory accounts. The commission suggested they adapt and apply an improvement programme similar to Cuttingclutter, published by the Financial Reporting Council in April 2011.
Councils should also be given the option to issue summary financial statements, it adds, noting that these are increasingly used in the private sector to provide information to shareholders.
‘Summary financial statements, in plainer and more accessible language, could be the main way of communicating key information more effectively to a wider audience,’ the briefing says.
Further gains could be made by exploring how to use summary financial information more effectively in support of more general reports issued by local authorities. The commission says work being undertaken by CIPFA is helping councils to tailor locally developed arrangements in this area.
In the longer term, steps could be taken to address complexities caused by the requirement for councils to reconcile the accounts they produce in accordance with Generally Accepted Accounting Principles with the government’s control framework.
This currently requires a series of ‘difficult to explain’ adjustments to smooth the impact of spending on council tax, but could be ended by a move towards only using GAAP-based reporting.
The commission noted, however, that making this change in one step would have added ‘several billion pounds’ to council tax bills, based on 2010/11 accounts. Instead, it said a ‘phased’ approach to the change could be used.
Paul Mason, CIPFA's assistant director for professional standards, welcomed the publication of the briefing.
