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CIPFA/LASAAC consults on new Code of Practice on Local Authority Accounting

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28 Jul 2014

The Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) are seeking comments on an exposure draft of the 2015/16 Code of Practice on Local Authority Accounting in the UK (the Code) which would apply to accounting periods beginning on or after 1 April 2015 (“the exposure draft”). CIPFA and LASAAC are also seeking comments on a consultation to simplify and streamline the presentation of local authority financial statements.

Local authorities in the United Kingdom are required to keep their accounts in accordance with ‘proper practices’. They must comply with the terms of the Code of Practice on Local Authority Accounting in the United Kingdom prepared by the CIPFA/LASAAC Local Authority Accounting Code Board (CIPFA/LASAAC).

The exposure draft includes proposals to incorporate the requirements of IFRS 13 Fair Value Measurement to the measurement of property, plant and equipment in the public sector.  The exposure draft proposes that operational property, plant and equipment should be measured based on the service potential that the assets provide in support of the services of the authority.  The exposure draft proposes that such assets are measured at existing use valuation and where no market is in existence or assets are specialised, measured at depreciated replacement cost.  For these assets, the exposure draft notes that IFRS 13 “will be out of scope” as “these assets will not formally be valued at fair value”.  These measurement bases are the same as within the current 2014/15 Code and hence are not subject to change as part of the consultation.

The exposure draft proposes a change for property, plant and equipment that is not being used to supply goods and services and that do not meet the criteria of assets held for sale (i.e. surplus assets).  It is proposed that these assets are measured at fair value in accordance with IFRS 13 where they are currently measured by an existing use valuation based on their use before coming surplus.  This change will also require IFRS 13 disclosures for such assets.

Other significant amendments proposed in the exposure draft are in relation to:

  • The impact of the Annual Improvements to IFRSs 2010 – 2012 and 2011 – 2013 Cycles.
  • The Impact of IFRIC 21 Levies
  • The implications of Financial Reporting Standard (FRS) 102 The Financial Reporting Standard applicable in the UK and Republic of Irelandwith respect to:
    • Value Added Tax –no significant changes.
    • Heritage Assets.  The exposure draft proposes to retain the current valuation methods for heritage assets (i.e. that entities can select the most appropriate and relevant method according to their specific circumstances) and to retain the provision that depreciation need not be provided for heritage assets with indefinite lives.
    • Pension Funds.

A number of other minor and drafting amendments are also proposed.  Comments on the exposure draft are invited until 10 October 2014.

In addition, CIPFA/LASAAC are also consulting on proposals to simplify and streamline the presentation of local authority financial statements/statutory accounts to “better meet the needs of users” and to “remove unnecessary burdens from local authority accounts preparers” (“the consultation”).  The consultation follows an earlier consultation in July 2013 on simplifying and streamlining the presentation of local authority financial statements.  Based on the earlier consultation respondents’ key messages were:

agreement with the consultation that local authority accounts have a tendency to be too long and are often burdened with too much detail

it was difficult to identify traditional local authority measures of performance i.e. movements on General Fund and HRA balances, and

there were a number of challenges to the application of the segmental reporting requirements and some of the reporting requirements of the Service Reporting Code of Practice (SeRCOP).

Following these comments, CIPFA/LASAAC’s consultation focuses on the reporting of local authority performance (i.e. the Comprehensive Income and Expenditure Statement and the Movement in Reserves Statement).  The consultation also focuses on the segmental reporting requirements specified in the Code and also considers narrative reporting requirements that accompany the financial statements.  The consultation seeks views from “interested parties and is encouraging respondents to be both creative and challenging in their responses”.

Comments on the consultation are invited until 19 September 2014.

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