The road to the code

25 May 15

The biggest changes in local authority accounting rules for 2016/17 are to the main financial statements and measuring transport infrastructure assets

It’s nearly that time of year again, when the CIPFA/Local Authority (Scotland) Accounts Advisory Committee issues its consultation on amendments to the Code of practice on local authority accounting in the United Kingdom for 2016/17.

Every year the code is updated for any changes to financial reporting standards and legislation. This year, however, the proposed changes will be the most fundamental since the move to IFRS-based accounts in 2010/11 and will affect all local authorities.

There will be two substantial areas of change – the streamlining of local authority financial statements and a move to measuring transport infrastructure assets on a depreciated replacement cost (DRC) basis. The consultation will be in mid-July with papers available on CIPFA's website.

CIPFA/LASAAC has already consulted on the streamlining of local authority financial statements and has made some changes to the 2015/16 code to highlight key messages on materiality and to support simplification of a number of key disclosures. Proposals in the 2016/17 code are likely to be more substantial.

CIPFA/LASAAC and CIPFA have established a working group to help local authorities tell a more streamlined story in a way that is more accessible to the different users of financial statements. A new funding statement brings together the accounting and funding frameworks, giving council taxpayers and other users comparable information about each set of accountabilities.

The consultation will include proposals to refocus the comprehensive income and expenditure statement and the movement in reserves statement. CIPFA/LASAAC wants input from preparers and other interested parties to ensure that local authorities can tell the most effective story.

The move to a DRC measurement base for transport infrastructure assets does not just impact on highways authorities. Non-highways authorities will need to follow the new measurement requirements if they hold material transport infrastructure assets.

The central aim of the transport code is that the same data should be used for asset management, financial management and financial reporting, with effective management of assets being the key driver. Since 2010, its methodology has been used for the provision of DRC information for the Whole of Government Accounts.

CIPFA/LASAAC has already given a steer on its approach to measuring transport infrastructure assets, for example, for the treatment of accumulated depreciation and impairment. Other examples have been discussed in LAAP Bulletin 103 Closure of the 2014/15 accounts and related matters.

Detailed accounting policies in the 2016/17 code required to implement the new measurement base will be subject to consultation. It is vitally important that CIPFA/LASAAC receives both technical and practical feedback on the proposals from accounts preparers and other key stakeholders. CIPFA is engaging with the audit community to identify at an early stage any practical implementation issues.

To assist local authorities in the implementation of this major change, in July 2014 CIPFA issued a project plan in LAAP Bulletin 100 Project plan for implementation of the measurement requirements for transport infrastructure assets by 2016/17. CIPFA also recently published Code of practice on transport infrastructure assets guidance notes.

The consultation process on the 2016/17 code will feature a number of other elements, including changes following the introduction of the Accounts and Audit Regulations in England and Northern Ireland this year; amendments to international financial reporting and accounting standards, including amendments to the International Accounting Standard (IAS) 1: Presentation of Financial Statements made as a result of the International Accounting Standards Board’s own disclosure initiative; and a review of the reporting requirements for pension funds.

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