Implementing new financial reporting codes will not be all downhill for councils, but they are nearing the end of the run
This year it was the skeleton bob. Eight years ago, it was curling. The UK doesn’t win many gold medals at the Winter Olympics, so the press focuses on those athletes who do.
Public finance isn’t like that. International Financial Reporting Standards are coming up faster than a speed skater, and authorities need to get ready. Otherwise the press will focus on the few who miss the target, not the many who hit it.
The recent Audit Commission publication Countdown to IFRS is helpful here. It highlights where local authorities were in November, and where they will need to be in 12 months time – a bit like a training schedule. Some are doing well; a similar number have major issues. But most authorities are somewhere in the middle – not where they hoped to be, but not so far behind they can’t catch up. In fact, Countdown to IFRS suggests no-one is so far behind they can’t hit the target with enough effort.
So what should authorities be doing now? Thinking about the changes required to complete the transition by March 2011 might seem as daunting as standing at the top of the bobsleigh run. But the same basic principles apply. Planning the route, taking each corner as it comes, and making sure you exit each corner in good shape for the next is as vital for implementing IFRS as it is for winning gold. So is learning from those who went first.
In this respect, the 2009/10 accounts process is vital. Corner one sets the tone for the whole course. Get it wrong and you are always playing catch-up. The fewer issues in the 2009/10 accounts, the easier the transition to IFRS.
Another early turn is the revised Private Finance Initiative accounting arrangements. These apply from 2009/10, so it’s good to see Countdown to IFRS indicating this topic has fewest issues. This doesn’t mean authorities should be complacent; in particular, they will need to consider whether any non-PFI schemes fall under Ifric 12, from the International Financial Reporting Interpretations Committee. But it does indicate that imminent deadlines focus the mind.
Talking of focus, lots of other issues are currently vying for attention – budgets, the financial crisis, the upcoming election. In the midst of these pressures, it’s important that the focus on IFRS is maintained. Plans need to be in place, staff identified, resources allocated and progress made on gathering the data needed for transition.
Further turns relate to leases, employee benefits, and property plant and equipment among others. Leases are a tricky set of turns to negotiate, although employee benefits have caused fewer problems than expected for other public sector bodies.
So what guidance is available? CIPFA published the IFRS Code in December, covering all the main technical issues. Implementation guidance is being published as it is developed. As the Audit Commission rightly said, councils shouldn’t wait for this more detailed guidance – the code includes all the main requirements.
It’s also worth remembering that implementing IFRS is a team sport – four-man bobsleigh, not skeleton or luge. Finance can’t implement IFRS alone; valuation, legal and HR colleagues all have a vital role to play.
Finally, what happens when we get to the bottom and complete the transition? Back to the top for run two. Some aspects of IFRS, such as component accounting, don’t start until 2010/11, and there are more developments to come.
Councils have already proved they can cope with implementing IFRS by introducing the financial instruments standards. The challenges are no tougher than that, although there are more of them. As Countdown to IFRS shows, provided authorities don’t underestimate the size of the task ahead or the effort required, and start now, they will be ready for IFRS.
Paul Mason is technical manager at CIPFA. Countdown to IFRS is available at www.audit-commission.gov.uk
