Proposed amendments to government Financial Reporting Manual to reflect new accounting standards

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28 Aug, 2014

The Government Financial Reporting team at HM Treasury has published two Exposure Drafts (EDs) proposing amendments to the government Financial Reporting Manual (FReM).

The Government Financial Reporting Manual (FReM) Exposure Draft (14)01 (link to HM Treasury site) proposes amendments to the FReM to reflect the application of IFRS 13 ‘Fair Value Measurement’ in the public sector. This exposure draft follows two previous exposure drafts on the application of IFRS 13 for the public sector (exposure drafts (13)01 and (12)03). Each of these consultations has informed the development of financial reporting policy and HM Treasury’s final proposals as set out in this exposure draft.

The Exposure Draft includes a new “principles based approach” to determining the use of IFRS 13 in the public sector.  It considers how IFRS 13 may be applied in the public sector context by distinguishing between those assets which are held for their service potential (i.e. operational assets) and those that not held for their service potential or that are surplus assets that can be disposed of. HM Treasury proposes that only assets in this second group are valued at fair value in accordance with IFRS 13, and then only if the entity holding those assets is not restricted from accessing the market. IAS 16 will continue to be adapted to ensure that assets in use that are held for their service potential are held at current value.

The Government Financial Reporting Manual (FReM) Exposure Draft (14)02 (link to HM Treasury site) proposes amendments to the FReM with the aim of simplifying and streamlining the presentation of the statutory annual reports and accounts produced by central government entities so as to better meet the needs of users. HM Treasury launched the simplifying and streamlining accounts project in April 2013 (link to HM Treasury website) and issued a consultation (part of that project) setting out proposals to restructure the format of the Annual Report and Accounts (ARA) produced by central government entities in July 2014.  This exposure draft details the proposed changes to the 2015 to 2016 FReM as a result of the project.

The Exposure Draft proposes to restructure the traditional ‘front-half’ annual report and ‘back-half’ financial statements into three integrated sections: performance, accountability and the financial statements. The purpose of the performance section is to “tell the story” of the reporting entity, providing information on the entity, its main objectives and strategies and the principal risks it faces. The accountability section contains the Governance Statement, remuneration report and information on parliamentary accountability including the Statement of Parliamentary Supply. The final integrated section will comprise the audited financial statements.  HM Treasury proposes that notes to the accounts will only be required in respect of material balances.

The comment deadline for both exposure drafts is 13 October 2014.

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