At a fork in the road

4 Oct 13

Three consultations proposing key changes signal some important challenges ahead for the future direction of local government finance

CIPFA and the Local Authority Scotland Accounts Advisory Committee have issued their annual consultation on the 2014/15 Code of Practice on Local Authority Accounting in the UK. They are now looking for input from those preparing the accounts before finalising it.  

The most significant changes proposed concern local roads, and the measurement of assets and liabilities generally as a result of implementing International Financial Reporting Standard 13 Fair Value Measurement. The standard introduces a single comprehensive definition of ‘fair value’ based on market prices. CIPFA/LASAAC has worked with the Treasury to ensure that the proposals for its application reflect public sector and local government circumstances.     

As a result, CIPFA/LASAAC is only proposing changes in the overall valuation approach for assets that local government uses or holds in a similar way to commercial entities – for example, office buildings and surplus assets. However, this is a complex standard, and feedback on the proposed approaches is essential to determine a practical way forward.

CIPFA/LASAAC is also consulting on the introduction of the group accounting standards issued by the International Accounting Standards’ Board in 2011.  These standards introduce a single control framework for consolidating entities that local authorities have an interest in, include new requirements for the classifications of joint arrangements and introduce a new standard that focuses on the disclosure of interests in other entities.

The proposals may not have a significant impact on local authorities’ group accounts where the current criteria for control decisions are reasonably clear because the overall concept of control is retained. However, the underlying standards are drafted from a private sector perspective and introduce new reporting requirements, so CIPFA/LASAAC needs to know that the application approach proposed in the code will work for local authorities.

CIPFA/LASAAC is also consulting on proposals for its 2015/16 edition to better reflect the value of infrastructure assets such as roads and bridges. As these are currently held at depreciated historical cost, one of the proposals is to change the valuation basis by implementing the Depreciated Replacement Cost measurement requirements in the CIPFA code of practice on Transport Infrastructure Assets.  

The fundamental aim of this code is that the same data should be used for asset management, financial management and financial reporting, with the more effective management of assets being the key driver. Since its publication in 2010, its methodology has been used to provide DRC information for the Whole of Government Accounts, as well as to support improvements in asset management.   

The steering group responsible for developing and implementing the code has reviewed it and proposed updates to reflect practitioners’ experience since its original publication. Given its consultation on introducing the DRC valuation into the statements of accounts, the accounting code’s links have also been strengthened, providing more clarity on the practicalities of financial reporting. 

The proposed changes to the Transport Infrastructure Assets Code are the subject of a further consultation, with the aim of publishing an updated code in autumn 2013.

CIPFA/LASAAC is aware this difficult issue has many practical implications as well as technical accounting issues to overcome, and has therefore proposed a phased implementation using a ‘dry run’ in the 2014/15 code. Implementing these requirements would have a significant impact on local authority balance sheets, so CIPFA/LASAAC is looking for feedback on how best to implement these requirements, including options for the dry run process.

CIPFA/LASAAC has also simultaneously issued a consultation requesting user and practitioner input on options for simplifying and streamlining the presentation of local authority accounts, which is running in parallel with a similar exercise for central government by the Treasury. Details of all three consultations can be found on the CIPFA website. The Transport Infrastructure Assets Code consultation closed on 13 September, but the two CIPFA/LASAAC consultations are open until 11 October.  

Together, these consultations propose a number of changes that are important in terms of the future direction of local government financial reporting. Feedback on the technical and practical implications of the proposals is an essential part of the development process – please help us to help you by taking this opportunity to have your say.

Mandy Bretherton and Sarah Sheen are both technical managers at CIPFA

This feature was first published in the October edition of Public Finance Magazine 

  • Mandy Bretherton and Sarah Sheen

    Mandy Bretherton and Sarah Sheen are both technical managers at CIPFA

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