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ICAEW comment on revised guidance on impairment of social housing assets

  • ICAEW (Institute of Chartered Accountants in England and Wales) (lt green) Image

23 Jun 2014

The Institute of Chartered Accountants in England and Wales (ICAEW) has published its comment letter on the revised guidance relating to impairment of social housing assets published by the National Housing Federation’s (NHF) and the SORP Working Party.

An original Exposure Draft (“the original ED”) of a SORP for registered social housing providers was issued by the NHF in December 2013 with a comment period which closed on 14 February 2014.  The impact assessment performed by the NHF, along with the responses to the original ED indicated that that “the sector was deeply concerned about proposals on the impairment of social housing assets”.

Following consideration of responses to the original ED, the NHF, along with the SORP Working Party, published a further ED in April 2014 that significantly revised the proposed guidance relating to impairment of social housing assets.

The key comments of the ICAEW are:

  • That the use a purely cash flow based estimate (i.e. value in use) in determining the recoverable amount of social properties would not provide more relevant and reliable information to users. 
  • That there is not sufficient guidance in paragraphs 14.25 and 14.26 to explain the calculation of depreciated replacement cost.  The ICAEW consider that “the proposed guidance may not work well in practice” and agree that worked examples demonstrating the application of the guidance would be useful.
  • That it does not see additional benefits in requiring social landlords to disclose the value in use of a cash generating unit if it chooses to use the VIU-SP estimation technique in performing an impairment assessment.  
  • That the section setting out the indicators of impairments does not provide sufficient guidance to social landlords to understand when there may be an indicator necessitating an impairment assessment.  The ICAEW comment that the guidance in paragraph 14.5 “needs to make it clearer that the five ‘most common’ indicators identified do not constitute a comprehensive list”.
  • That although the ICAEW are of the opinion that the worked examples in the impairment do provide sufficient guidance for social landlords to apply the principles set out in the SORP, the use of numbers would be useful to “articulate the underlying principles”.

In addition, the ICAEW consider that “more clarity on the disclosures relating to inclusion of impairment loss/reversal of impairment loss (paragraphs 14.33 and 14.36) in the Statement of Comprehensive Income, such as a separate line in a note, would be helpful”.

The ICAEW comment that its responses are “conditional on the retention of the cross subsidy accounting principles” which are included within SORP (2010) paragraph 164.  The ICAEW see that these principles are “essential for a true and fair view” and recommend a further consultation “in the event that the cross subsidy accounting principles are not reflected in the revised SORP”.

Further comments and a full response to all questions raised in the invitation to comment are contained within the full comment letter on the ICAEW website.

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