Statutory override sought over IFRS9

14 Mar 18

CIPFA is seeking an override to protect council taxpayers from historic decisions arising from changes to an accounting standard.

CIPFA is seeking an override to protect council tax payers from historic decisions arising from changes to an accounting standard


International Financial Reporting Standard 9 (IFRS9), promulgated by the International Accounting Standards Board, applies to all corporate and public financial reporting.

It has made important changes to accounting for local authority investments, which include collective investment vehicles. 

Gains and losses on the sale of an investment can have genuine consequences, so it has been determined that they should impact on the trading, that is revenue, performance.  

It is likely that many collective investment vehicles will be classified from 1 April 2018 so that the gains and losses will be chargeable to income and expenditure. 

Technically, the issue is whether collective investment vehicles qualify for the election under IFRS9 for movements in fair value of “investments in an equity instrument” to be chargeable to reserves – that is, chargeable to fair value through other comprehensive income.

To do so, the investment would need to meet the definition of an equity instrument in accounting standards.

This will be a decision for the local authority to make and practitioners who will need to consider all the relevant and contractual information and whether the instrument is “puttable” (ie the holder has the right to demand repurchase or repayment of the principal).   

If the instrument is puttable, CIPFA agrees with the view of the International Accounting Standards Board (and subsequently confirmed by the IFRS Interpretations Committee) that a financial instrument that has all the features of a puttable instrument is not eligible for the presentation election in IFRS9 to charge these movements to reserves (in a local authority’s case the Financial Instruments Revaluation Reserve).

CIPFA/LASAAC, the independent standard setting board, has therefore acknowledged that, in accordance with the aims of the standard, that fair value gains and losses should be reported transparently and fairly, and should be consistent with all other accounting entities in the UK and overseas (applying IFRS).

However, CIPFA recognises two difficulties: first, it is important that the impact of unrealised losses or gains should not affect the taxpayer through actual reduction or increases in the council’s reserves; and, second, clearly, councils culturally treat the instruments under discussion as balance sheet investments.

We have received widespread feedback, principally from treasurer societies, of their concerns, which has of course weighed upon us. 

CIPFA is therefore working with the Ministry of Housing, Communities & Local Government and each of the devolved administrations in support of a statutory override. 

If this is granted, councils will still be required to account in accordance with the highest professional standards but the consequences of historic decisions from this change will not be borne by the council tax payer.

We have been cautious when weighing the public interest to ensure that there has been a balanced debate – one that is helpfully informed by the investment providers to the sector.  It is helpful to assist councils to understand the implication of these changes. 

Finally, in asking government for an override, we are mindful of a downstream risk. If new accounting standards that apply fully to the corporate sector should not apply to councils in the public and taxpayer interest, the question may be asked whether public bodies should in fact have access to such instruments. 

  • Rob Whiteman
    Rob Whiteman

    Chief executive of CIPFA since 2013, after leading the UK Border Agency and the Improvement & Development Agency. Previously, he was CEO at Barking and Dagenham council.

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