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Deloitte comment letter on the CIPFA/LASAAC consultation on accounting for schools in local authorities

Published on: 03 Apr 2014

We have published our comment letter on the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) consultation on accounting for schools in local authorities

The Accounting for Schools in Local Authorities in England and Wales consultation is based on the report of the Joint Working Group of HM Treasury and CIPFA/LASAAC (“the Working Group”).   The working group report (‘The Accounting Treatment of Local Authority Maintained Schools in England and Wales’) concluded that community schools, voluntary controlled, voluntary aided and foundation local authority maintained schools (“local authority maintained schools”) are separate entities controlled by local authorities.  Under IFRS 10 Consolidated Financial statements these local authority maintained schools would need to be included in the local authority group financial statements.  It was also concluded that academies and free schools are not under local authority control.  Under IFRS 10, academies and free schools would not be required to be included in the local authority group financial statements.  

The working group considered whether an adaption to IFRS 10 as adopted by the Code of Practice on Local Authority Accounting in the United Kingdom (“the Code”) was required to allow local authority maintained schools to be included in the local authority single entity financial statements.  

In the consultation, CIPFA/LASAAC are therefore consulting on the proposal that the results of local authority maintained schools should be included within the separate financial statements of local authorities.  They also propose a similar accounting treatment for community special, foundation special and local authority maintained nursery schools.  The consultation also seeks the views of respondents on the working group’s assessment that “the inclusion of schools in the local authority’s single entity accounts, instead of their group accounts, is unlikely to alter decision making”.  The proposals adapt the definition of the local authority single entity financial statements in Chapter 9 of the Code.  

Our key comments include:

We agree with the conclusions in sections C and D of the report ie that schools are separate entities for accounting purposes and that community schools, voluntarily controlled, voluntary aided and foundation schools meet the criteria for consolidation into local authority accounts under IFRS. 

We acknowledge that whilst the technically correct answer would be to include schools only in consolidated financial statements, the additional administrative burden on more local authorities to prepare consolidated financial statements is also an important consideration. 

More emphasis should be given in the Code to consideration of how material the schools may be to the local authority’s financial statements, and the level of disclosure given in the notes to the financial statements to provide readers with a clear understanding of the balances and transactions related to the schools. 

Paragraph 58 of the report does not refer to materiality and uses the term “not produce a substantially different report”.  We believe that the Code should include consideration of materiality and give local authorities the option to include schools in consolidated financial statements if they are material. 

The Code is also unclear as to the treatment where the local authority already prepares consolidated financial statements.  In such cases, the Code could also give the option of including the schools only in the consolidated financial statements. 

Further comments and a full response to all questions raised in the invitation to comment are contained within the comment letter which can be downloaded below.

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