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code 2013/14 itc
the code of practice on local authority accounting in the united kingdom
2012/13 code update and 2013/14
code
invitation to comment
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invitation to comment
Introduction
1. Local authorities in the United Kingdom are required to keep their accounts in
accordance with ‘proper practices’. This is defined, for the purposes of local
government legislation, as meaning compliance with the terms of the Code of
Practice on Local Authority Accounting in the United Kingdom (the Code),
prepared by the CIPFA/LASAAC Local Authority Accounting Code Board
(CIPFA/LASAAC). The Code is reviewed continuously and is issued annually.
2. Under the oversight of the Financial Reporting Advisory Board, the CIPFA/LASAAC
Code Board is in a position to issue mid-year updates to the Code. There have
been a number of significant developments to statutory accounting or disclosure
requirements which could not be included in the 2012/13 Code due to the timing
of issue. CIPFA/LASAAC would stress that this mid-year update has been issued
to assist practitioners with the accounting requirements of legislative and other
policy initiatives that have emerged following approval for publication of the
2012/13 Code rather than to introduce any new accounting changes. As with the
2012/13 Code, the 2012/13 Code Update is applicable for the 2012/13 financial
year and is based on accounting standards in effect on 1 January 2012 or earlier.
3. The edition of the Code that is applicable for a financial year is based on
accounting standards in effect on 1 January prior to the start of the financial year.
For the 2013/14 Code which is also the subject of this consultation, this means
that EU adopted accounting standards with an effective date of 1 January 2013 or
earlier will need to be taken into account. Section B of this Invitation to
Comment (ITC) includes the items that will feature in the 2013/14 Code.
4. Interested parties may be aware that following the first full year of IFRS adoption
CIPFA/LASAAC sought views on the implementation of the Code in last year’s ITC.
Its post-implementation review was initiated in April this year. Other views were
sought via an article in Public Finance and a Workshop at the CIPFA Conference in
July. Whilst initial conclusions are that overall implementation was successful the
review has identified a number of areas where the Code can be augmented or
enhanced. These enhancements, the interim outcomes of the review are included
in Section B of this ITC, if interested parties have any additional issues or other
feedback they would like to make on the implementation of the IFRS-based Code
they are invited to provide these with their responses to this ITC.
5. This ITC sets out CIPFA/LASAAC’s proposals for developing the current (2012/13)
Code with the resulting amendments to be included in either the 2012/13 Code
Update (and in the 2013/14 Code) to apply to accounting periods commencing on
or after 1 April 2012 (Section A of this ITC), or the new edition of the Code (the
2013/14 Code) to apply to accounting periods commencing on or after 1 April
2013 (Section B of this ITC). The proposed developments are:
Section A – 2012/13 Code Update and 2013/14 Code –
Statutory Accounting and Disclosure Requirements
(a) Housing Revenue Account Reform in England– the New Self - Financing
Regime
(b) Accounting for Carbon Reduction Commitment (CRC) Energy Efficiency
Scheme Assets
(c) Changes to the Code to Reflect the New Prudential System for Capital
Finance in Northern Ireland
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(d) Minor amendments
Section B – 2013/14 Code Only
(e) Accounting for Employee Benefits - the June 2011 Amendments to IAS 19
(f) The Comprehensive Income and Expenditure Statement – June 2011
Amendments to IAS 1 Presentation of Financial Statements and
Consequential Changes arising from the June 2011 Amendments to IAS 19
(g) IFRS 13 Fair Value Measurement
(h) Augmenting the Code’s Provisions on Service Concession Arrangements
(i) Accounting for Financial Instruments – IFRS 7 Financial Instruments:
Disclosures (December 2011 Amendments)
(j) Interim Outcomes of the Post-Implementation Review
(l) Accounting for Schools in Local Government
(m) The End of the Local Authority Landfill Allowance Trading Scheme in
England
(n) Structural Change to Police and Fire Authorities in Scotland, and
(o) Other minor amendments to accounting standards and legislative changes.
The Consultation Process
6. Where CIPFA/LASAAC is interested in specific issues, consultation questions have
been included in the ITC. However, CIPFA/LASAAC welcomes comments on any
aspect of the draft 2012/13 Code Update or the 2013/14 Code. In order to
assess comments properly CIPFA/LASAAC would prefer respondents to support
comments with clear accounting reasons and, where applicable, preferred
alternatives.
7. Responses to this Invitation to Comment will be regarded as on the public record
unless confidentiality is specifically requested and are required to be published on
the CIPFA Website. If you require your response to be treated as confidential
please indicate this clearly on the response itself. Copies of all correspondence
and an analysis of responses will be provided to the Financial Reporting Advisory
Board.
8. A copy of the Exposure for the Drafts of the 2012/13 Code Update and the
2013/14 Code in pdf format can be down-loaded from the CIPFA website
http://www.cipfa.org.uk/pt/consultations.cfm
9. To assist authorities to respond to the consultation, a response form (in Word
format) is attached. We would be grateful if authorities could use this form to
respond to the consultation as this will speed up the analysis.
10. Responses are required by 1 October 2012 and may be sent to:
The Secretary
CIPFA/LASAAC Local Authority Code Board
Policy and Technical Directorate
CIPFA
3 Robert Street
London
WC2N 6RL
Fax: 020 7543 5695
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E-mail: [email protected]
(For ease of handling, e-mailed responses using the Word document form
provided are preferred.)
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SECTION A – DEVELOPMENT ITEMS WHICH WILL BE INCLUDED IN A
2012/13 CODE UPDATE (AND 2013/14 CODE)
Statutory Accounting and Disclosure Requirements
Introduction
11. As noted in the Introduction to this Invitation to Comment (ITC), CIPFA/LASAAC
is able to issue mid-year updates to the Code. However, CIPFA/LASAAC will
restrict any amendment in those updates to only those necessary to ensure that
the Code is able to reflect the relevant statutory reporting requirements in order
to assist practitioners in their understanding of the Code’s requirements.
Housing Revenue Account Reform (England) – The New Self Financing Regime
12. The Invitation to Comment on the 2012/13 Code noted the introduction in
England of the self-financing regime for the Housing Revenue Account (HRA).
However, the statutory arrangements for the regime had not been confirmed at
the time the Code was authorised for publication. The Localism Act 2011 has now
been enacted and the suite of determinations required to implement the regime
are in place.
13. The Item 8 Credit and Item 8 Debit (General) Determination from April 2012 has
been drafted with an intention that after a five year transitional period HRA
capital financing for dwellings will be based on depreciation charges. However,
during the transitional period the expected accounting impact on the HRA is not
substantially changed from that which applied before 2012/13.
14. The CIPFA/LASAAC Board’s analysis of the statutory changes is that the 2012/13
Code needs to be updated in two main areas:
Removal of references in Section 3.5 to England in relation to HRA Subsidy
and the Major Repairs Allowance
Amendment to the capital accounting requirements in Section 4.1.3
consequent on the changes made in the Determination
15. The proposed updates to the 2012/13 Code have therefore been restricted to the
following:
In paragraph 3.5.3.1, the deletion of references to England in the items in the
HRA Income and Expenditure Statement for negative HRA Subsidy payable
(d) and HRA Subsidy receivable (m)
In paragraph 4.1.3.6, the description of the accounting entries required to
manage the “bottom line” of the HRA and the Major Repairs Reserve has been
amended so that it is consistent with the Determination. Reference to the
scenario where a credit is made to the HRA where depreciation is less than
the MRA has been deleted (but see also last bullet).
The Code has also been updated for a transfer included in the Determination
where decent homes backlog funding has been credited to the Housing
Revenue Account in accordance with a direction made by the Secretary of
State under item 9 of Part I of Schedule 4 to the 1989 Act. This transaction
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has been added to ensure that the transfers to the Major Repairs Reserve
accord with the Determinations.
The Code has also been amended to recognise that the Determination also
permits authorities to transfer an amount in excess of depreciation.
16. Paragraph 3.5.5.1(6) that requires authorities to provide a breakdown of the HRA
Subsidy payable to an authority has not been deleted as the disclosures in that
paragraph are based on statutory requirements in the Housing Revenue Account
(Accounting Practices) Directions 2011 that were extant when this ITC was being
prepared.
Housing Revenue Account Reform (England) – The New Self Financing Regime
Q1 Do you agree that the amendments to the presentational
requirements of the Code required for HRA self-financing in England
are limited to deletion of references to England in the HRA Income
and Expenditure Statement line items for negative HRA Subsidy
payable and HRA Subsidy receivable? If not, why not? What
alternatives do you suggest?
Q2 Do you agree that the amendments to paragraph 4.1.3.6 reflect
effectively the process required to manage the impact of depreciation
on the HRA balance and the maintenance of the Major Repairs
Reserve under the Item 8 Credit and Item 8 Debit (General)
Determination from April 2012 and the Accounts and Audit (England)
Regulations 2011? If not, why not? What alternatives do you
suggest?
Q3 Do you agree that the amendments to paragraph 4.1.3.6 reflect the
changes to the statutory accounting requirements for the Major
Repairs Reserve introduced by the Determination? If not, why not?
What alternatives do you suggest?
Accounting for Carbon Reduction Commitment (CRC) Energy
Efficiency Scheme Assets
17. Accounting provisions for the Carbon Reduction Commitment (CRC) Energy
Efficiency Scheme have not previously been included in the Code, although the
scheme became operational in 2011/12. CIPFA/LASAAC has determined that
Section 2.4 of the Code should be expanded to follow the requirements in relation
to CRC based on IFRIC 3 Emission Rights, although the IFRIC was withdrawn in
2005.
18. For 2012/13, the CRC Energy Efficiency Scheme is still in its introductory phase,
where sales of allowances are prospective, but it appears that the opportunity
might exist for authorities to purchase allowances prospectively. Following the
decisions made by IFRIC 3, the proposed amendments to the 2012/13 Code set
out in paragraphs 2.4.2.10 to 2.4.2.13 are therefore:
to recognise an asset for any allowances held
to recognise a liability for the surrender of allowances to the CRC Registry
allowances are held on the Balance Sheet as:
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- intangible assets (analysed into current and non-current amounts as
appropriate) accounted for in accordance with Section 4.5 of the Code
– this is because assets meet the definition of ”identifiable non-
monetary assets without physical substance”; or
- if held for the purposes of trading, current assets
where allowances are issued for less than their fair value, they should be
measured on recognition at fair value, with the excess over purchase price
being recognised as income
where there is evidence of an active market, allowances should be revalued in
accordance with Section 4.5 of the Code; otherwise they should be measured
at cost.
19. There are no specific disclosure requirements added in relation to the CRC Energy
Efficiency Scheme.
Accounting for Carbon Reduction Commitment (CRC) Energy Efficiency Scheme
Assets
Q4 Do you agree that it is appropriate to base the proposed accounting
provisions for the CRC scheme in Section 2.4 on the decisions made
in IFRIC 3 Emissions Rights (withdrawn 2005) – ie, to recognise an
asset for allowances held and a liability for the surrender of
allowances? If not, why not? What alternatives do you suggest?
Q5 Do you agree that allowances should be carried as intangible assets
(analysed into current and non-current amounts) in accordance with
Section 4.5 of the Code or, if held for trading, as current assets in
accordance with Chapter Five of the Code? If not, why not? What
alternatives do you suggest?
Q6 Do you agree that it is appropriate to measure allowances at fair
value? If not, why not? What alternatives do you suggest?
Changes to the Code to Reflect the New Prudential System for
Capital Finance in Northern Ireland
20. The new prudential system for capital finance in Northern Ireland was introduced
on 1 April 2012. However, the secondary legislation required to give the system
effect was introduced too late in the development process of the Code to allow
full introduction of those changes to the Code. The main substantial amendments
proposed in the 2012/13 Code Update are:
the recommended wording for the Statement of Responsibilities in paragraph
3.2.4.1 has been amended to make reference to the Local Government
Finance Act (Northern Ireland) 2011 and the duties this places on councils to
make arrangements for the proper administration of their financial affairs;
the Statutory Accounting Requirements paragraphs of Sections 4.1 to 4.6
have been updated to include Northern Ireland in the references to the need
to charge Minimum Revenue Provision (rather than loans fund charges) to the
General Fund; and
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Appendix B Sources and Legislation has been fully revised to reflect the new
statutory provisions that affect the preparation of the capital financing entries
in the financial statements in Northern Ireland.
Changes to the Code to Reflect the New Prudential System for Capital Finance in
Northern Ireland
Q7 Do you agree that the amendments to the Code are sufficient to
reflect the impact on the financial statements of the implementation
of the new prudential system in Northern Ireland? If not, why not?
What alternatives do you suggest?
Minor Changes for the 2012/13 Code Update
Non-Domestic Rate Income: Potential for the Authority to Act as Principal
(England and Scotland)
21. The possibility of anticipated use of Tax Increment Financing (TIF) in England is
discussed in more detail in Section B of this ITC at paragraphs 122-125. In
addition, the Scottish Government has stated it is supportive of proceeding with
TIF pilots1.
22. CIPFA/LASAAC considers that at this current point in time that there is insufficient
detail to include specific provisions for TIF in the Code. However, it has included
a general provision to enable authorities to develop appropriate accounting
treatment if the timetables do not permit specific provisions to be included in the
Code at paragraph 2.8.2.2.
23. The Scottish Government has also introduced the Business Rate Incentivisation
Scheme from 1 April 2012, which allows authorities to retain a portion of any NDR
income in excess of a target collection performance. In relation to the Business
Rate Incentivisation Scheme it is considered that authorities should determine
whether an element of any Non Domestic Rate income has been collected on a
‘principal’ basis and if this is the case, the authority would need to account for it
under Section 2.6 of the Code Principal and Agent Transactions.
Non-Domestic Rate Income: Potential for the Authority to Act as Principal
(England and Scotland)
Q8 Do you agree with the proposed amendment at paragraph 2.8.2.2 of
the Code? If not, why not? What alternatives would you suggest?
The Local Authorities (Capital Finance and Accounting)(England)
(Amendment) Regulations 2012 (SI 2012 No. 265) (as amended) 24. The abovementioned Regulations were made in February 2012. The main effect
of the changes is to bring securitisation within the capital finance framework,
relax the rules on bond investments, and clarify the definition of capital
expenditure. Although these amendments extend the statutory definition of
capital expenditure the CIPFA/LASAAC Code Board does not consider that it needs
1 See: http://www.scotland.gov.uk/Topics/Government/Finance/18232/TIF
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to make specific reference to this set of Regulations as these amendments are
picked up in the general provisions of the Code in relation to the statutory
accounting requirements.
Other minor changes for the 2012/13 Code Update
25. There are also two minor amendments and corrections which do not significantly
change the Code in any substantial way at paragraphs 2.3.2.11 and 6.5.6.7 (note
that this latter minor amendment will be for the 2012/13 Code Update only, in
accordance with paragraph 112 of Section B of the ITC). These are itemised in
the Exposure Draft – Minor Amendments 2012/13 Code Update.
Other minor changes for the 2012/13 Code Update
Q9 Do you agree with the minor amendments and corrections listed in
the Exposure Draft? If not, why not? What alternatives do you
suggest?
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SECTION B – DEVELOPMENT ITEMS WHICH WILL BE INCLUDED IN THE 2013/14
CODE ONLY
IAS 19 Employee Benefits (June 2011 Amendments)
26. The International Accounting Standards Board (IASB) issued amendments to IAS
19 Employment Benefits in June 2011. The amendments to the Standard have
been adopted by the EU2 and therefore will, subject to full due process, be
adopted in the Code. The most substantial amendments to the Standard included
in this consultation are related to post-employment benefits, but have an impact
on each of the first four sections of Chapter Six of the Code:
6.1 Introduction and definitions
6.2 Benefits payable during employment
6.3 Termination benefits
6.4 Post-employment benefits
27. The amendments proposed in the 2013/14 Code and described in the following
paragraphs are limited to those that CIPFA/LASAAC has deemed are necessary as
a result of the amendments to IAS 19.
Introduction and definitions
28. The definitions in IAS 19 have been restructured so that they are no longer in
simple alphabetical order. Instead they are presented in four functional sections.
Section 6.1 of the Code has been revised to reflect the same structure.
29. Within these revisions, some changes have been made to particular definitions,
new definitions have been added and redundant terms have been removed.
CIPFA/LASAAC has not identified any consequences for the preparation of the
statement of accounts arising from the revisions to the definitions, apart from
those detailed in the succeeding paragraphs of this ITC.
30. One of the definitions in the proposed amendments in paragraph 6.1.2.1 “assets
held by a long-term employee benefit fund” has been adapted to include Local
Government Pension Scheme circumstances and has introduced an additional
criterion to the definition ie that “… the assets are held for a fund that is legally
separate within the reporting authority…” Interested parties’ views are sought on
the need to include this minor adaptation to the definition to ensure that this
definition adequately describes the assets held by local authority funds.
Benefits payable during employment3
31. The amendments to this section are largely restricted to those required by the
modifications to the terminology in the revised definitions. The accounting
requirements in the 2012/13 Code have been retained.
2 COMMISSION REGULATION (EU) No 475/2012
3 Note that paragraph 6.2.5.2 of the ED currently includes references to Police and Fire Boards – it
is anticipated that these references will be removed in accordance with paragraph 112 of this ITC.
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32. It should be noted that IAS 19 now uses the term “paid” absences, rather than
“compensated” absences. However, CIPFA/LASAAC is of the view that references
to paid absences has the same meaning in accounting terms as compensated
absences. This clarification has been made in the proposed amendments to the
Code.
33. Section 6.2.3 on other long-term employee benefits has been heavily revised, but
wholly as a result of the changes to accounting requirements for the
reclassifications set out in greater detail in Section 6.4 Post-Employment Benefits.
The basic accounting principles are retained from the 2012/13 Code.
34. Paragraph 6.2.4.1 has been amended to make specific mention of the
requirements of other sections of the Code in relation to the disclosure of
employee benefits – this is in accordance with the approach in IAS 19. The
2012/13 Code made general reference to a need to consider other provisions of
the Code. CIPFA/LASAAC anticipates that authorities will have made such a
disclosure as part of the segment reporting reconciliation to a subjective analysis
of total income and expenditure required by paragraph 3.4.2.90 and might be
required to disclosure material employee benefits under paragraph 3.4.2.51 of
the Code.
Termination benefits
35. Incidental amendments have been made to Section 6.3 to reflect the
modifications to the terminology in the revised definitions, as described in
paragraph 29.
36. The Section has been revised to provide more precisely when a liability and an
expense for termination benefits shall be recognised in accordance with the
amendments to the Standard. In particular, the previous contents of Section
6.3.2 have been withdrawn in their entirety and replaced by revised accounting
requirements. The recognition point is now based on the date when an authority
can no longer withdraw an offer of termination benefits, compared to the previous
test of being demonstrably committed to terminations.
37. Paragraph 6.3.3.1 has been amended to make specific mention of the
requirements of other sections of the Code in relation to the disclosure of
employee benefits – this is in accordance with the approach in IAS 19. The
amendments have taken the same form as the amendments for short and long-
term employee benefits as described in paragraph 34 above.
38. Although substantial change has been made to the Code’s provisions for
termination benefits, CIPFA/LASAAC is of the view that the new requirements
should not make a substantial practical difference to the way in which benefits
are recognised, measured and disclosed compared with the provisions in the
2012/13 Code.
Post-employment benefits
39. The amendments to IAS 19 that relate to post-employment benefits are focused
on:
Reclassification of the components of defined benefits costs: there are now
three major components to defined benefit cost – service cost, net interest
on the net defined benefit liability (asset) and remeasurements of the net
defined benefit liability (asset)
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Changes in the definitions of some of those components and their sub-
components, and
Changes in the approach to disclosures.
40. The amendments to the Standard also resulted in drafting changes to those
defined benefit schemes that are accounted for as defined contribution plans.
The main change for these schemes is introduced at paragraph 6.4.2.4 ie the new
disclosure requirements for these types of scheme – see also new disclosure
paragraph 6.4.3.42 14). These new requirements comprise more description of
the funding arrangements and the risks and obligations of the authority under
such schemes, with additional requirements relating to the expected contributions
and a comparison of the level of participation that an authority might have in the
plan in comparison with other entities.
41. A substantial implementation issue in relation to the reclassification of
components of defined benefit costs is that service cost is defined by IAS 19 as
comprising current service cost, past service cost and gains/losses on
settlements. However, the Service Reporting Code of Practice (SeRCoP) permits
only current service cost to be included in the total cost of services. Paragraph
6.4.3.27 therefore retains recognition of components at the 2012/13 reporting
level.
42. As noted in paragraph 39 above, a further new classification of remeasurements
has also been introduced by the amendments to the Standard which comprises:
actuarial gains and losses;
the return on plan assets, excluding amounts included in net interest on
the net defined benefit liability (asset); and
any change in the effect of the asset ceiling, excluding amounts included in
net interest on the net defined benefit liability (asset).
CIPFA/LASAAC has not required any further disaggregation of the
remeasurements reclassification into its components as it is not aware of any
significant financial reporting need to do this. This is also discussed as a
reporting issue in relation to the Comprehensive Income and Expenditure
Statement at paragraph 49 below.
43. The amendments to the disclosure requirements of IAS 19 are significant. The
amended standard introduces explicit disclosure objectives and is more of a
principle-based approach. The new disclosure requirements are also more
detailed for many of the disclosures than required previously. CIPFA has met with
representatives of local government actuaries to discuss the impact of the new
disclosures, consider the new requirements and whether the disclosures will
require additional interpretation for local government circumstances (and whether
the information can be produced for the Local Government Pension Schemes).
44. There are a small number of the disclosures where it is clear that difficulties will
arise. The two where most difficulties were envisaged are at proposed disclosure
6.4.3.42 8) and at 13) c). CIPFA/LASAAC is therefore extremely interested in
interested parties’ views on these disclosures (but would welcome commentaries
on any of the new disclosure requirements). In any responses sent, it would be
helpful if interested parties could set out what they consider the difficulties to be
and also give an indication of the costs to the authority of implementing the
disclosure. In addition it would be also useful if interested parties could set out
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whether any other information is available to help meet the disclosure
requirements in question.
Section 6.5 - Pension Funds – Actuarial present value of promised retirement
benefits
45. There has been some debate recently about the reporting requirements of
“actuarial present value of promised retirement benefits”. IAS 26 gives three
options for the presentation of the actuarial present value of promised retirement
benefits. Paragraph 6.5.2.10 of the Code confirms how these are to be applied by
administering authorities – the three options are included in the Exposure Draft of
proposed amendments to the Code. It is clear from financial reporting
requirements that the best option would be to require a roll-forward of assets and
liabilities in the same manner as IAS 19. However, for some funds with admitted
bodies at a different year end this might be at a significant additional cost.
CIPFA/LASAAC has clarified that it considers that not all of the options are
required to represent the position at the balance sheet date.
IAS 19 Employee Benefits (June 2011 Amendments)
Q10 Do you agree that the revisions to the definitions in section 6.1.2 will
not have practical consequences for the preparation of the statement
of accounts, other than those detailed in paragraphs 28 to 44 of the
ITC? If not, why not? What alternatives do you suggest?
Q11 Do you agree that the adaptation to the definition of assets held by a
long-term employee benefit fund is needed to accommodate local
government pensions scheme circumstances? If not, why not? What
alternatives do you suggest?
Q12 Do you agree with CIPFA/LASAAC’s clarification that in accounting
terms that paid absences means the same as compensated absences
and that this maintains the link with the statutory accounting
requirements? If not, why not? What alternatives do you suggest?
Q13 Do you agree that the amendments to Section 6.2.3 retain the basic
principles for accounting for other long-term benefits apart from
applying the revised analysis of the elements of remeasurements set
out in more detail in Section 6.4 for post-employment benefits? If
not, why not? What alternatives do you suggest?
Q14 Do you consider that paragraphs 6.2.4.1 and 6.3.3.1 effectively
capture the disclosure requirements for employee benefits expenses
in IAS 19 ie that there are other specific requirements in other parts
of the Code where these costs are already reported if material and/or
in the subjective analysis reconciliation in the segmental reporting
disclosure note? If not, why not? What alternatives do you suggest?
Q15 Do you agree that the changes to the Code’s provisions for
termination benefits from a “demonstrably committed” basis for the
recognition of termination benefits to one founded on the ability to
withdraw the offer of benefits will not make a substantial practical
difference to the way in which benefits are recognised, measured and
disclosed? If not, what effects will the changes have? What
alternatives do you suggest?
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Q16 Do you agree that the reclassification of components (and the
changes in definitions of some of those components) has been
achieved effectively in the proposed amendments to the Code? If,
not why not? What alternatives do you suggest?
Q17 Do you agree that the Code should identify separately as expenses
the three sub-components of defined benefit plan service cost, such
that current service costs can continue to be charged to the total cost
of services?
Q18 Do you agree that the revised disclosure requirements for defined
contribution plans in IAS 19 have been incorporated appropriately in
paragraph 6.4.3.42 14)? Are there any technical or practical barriers
to collecting and presenting the information required by the
disclosures?
Q19 Do you agree that the revised disclosure requirements for defined
benefit plans in IAS 19 have been incorporated appropriately in
paragraph 6.4.3.42? Are there any technical or practical barriers to
collecting and presenting the information required by the disclosures?
It would be helpful to CIPFA/LASAAC if respondents could comment
on the two disclosures identified but the question is open to all of the
disclosures in Section 6.4 of the proposed amendments to the Code.
Q20 Do you agree with CIPFA/LASAAC’s approach to the reporting of
actuarial present value of promised retirement benefits ie that the
options offered by the Code are not required to represent the position
at the balance sheet date? If not why not? Please provide an
explanation with your response.
IAS 1 Presentation of Financial Statements – the Comprehensive Income and Expenditure Statement
Amendments to IAS 1 Presentation of Financial Statements – Other
Comprehensive Income June 2011 Amendments
46. In June 2011 the IASB issued an amendment to IAS 1 Presentation of Financial
Statements. The main change resulting from the amendment was a requirement
for entities to group items presented in Other Comprehensive Income on the
basis of whether they are potentially reclassifiable to profit or loss at a future
date. The amendments to the Standard have been adopted by the EU4. If local
authorities have items of surplus or deficit that are reclassifiable at a future date
an authority would need to include relatively minor structural changes to the
Comprehensive Income and Expenditure Statement (CIES) to accommodate this
change.
47. However, CIPFA/LASAAC is of the view that the items that are likely to be
reclassified for local authorities are only likely to be gains or losses on available
for sale financial assets. The other gains or losses to be reclassified eg cashflow
hedges and exchange differences on translating foreign operations are unlikely to
occur frequently in local authorities. In the light of recent commentaries about
4 See footnote 1
15
the complexities of local authority financial statements CIPFA/LASAAC therefore
considers that it is relevant to challenge the applicability of the IAS 1
amendments to local authority circumstances. It is notable that the
reclassification adjustments that are likely to apply regularly to local authorities ie
gains or losses on available for sale financial assets are expected not to exist
after the anticipated adoption of IFRS 9 Financial Instruments in 2015/16 as this
classification has been removed by the standard.
48. CIPFA/LASAAC’s preferred approach would be to include a requirement in the
Code for authorities to adopt the amendments to IAS 1 where they have items
recognisable in Other Comprehensive Income and Expenditure (OCIE) that are
reclassifiable to the Surplus of Deficit on the Provision of Services but not to
amend the line analysis of the Comprehensive Income and Expenditure
Statement for all authorities. This approach is reflected in the Exposure Draft.
Amendments to the Comprehensive Income and Expenditure Statement as a
Result of the June 2011 Amendments to IAS 19
49. The amendments to the CIES also include proposed consequential amendments
to the Statement as a result of the adoption of the amendments to IAS 19,
reflecting the changes as a result of the new classifications of defined benefit
cost. Interested parties’ views are sought on whether the reporting classifications
identified in the CIES are set at an appropriate level for local government
circumstances.
IAS 1 Presentation of Financial Statements – Other Comprehensive Income
Q21 Do you agree with CIPFA/LASAAC’s preferred approach to the
amendments to IAS 1 ie to include a requirement for authorities to
adopt the amendment to IAS 1 when they report amounts in Other
Comprehensive Income and Expenditure which are reclassifiable to
the Surplus or Deficit on the Provision of Services? If not, why not?
Please provide a rationale in support of the option you prefer.
Q22 Do you agree with the proposed amendments to the line items in the
CIES as a consequence of the adoption of IAS 19 in the Code? If not,
why not? What alternatives do you suggest?
IFRS 13 Fair Value Measurement
50. The IASB issued a fair value measurement standard, IFRS 13, in May 2011. The
new standard defines fair value and sets out in a single IFRS a framework for
measuring fair value. It also requires significant disclosures about fair value
measurements. IFRS 13 does not determine when an asset or a liability is
measured at fair value. The measurement and disclosure requirements of IFRS
13 apply when another IFRS requires or permits the item to be measured at fair
value (with some exceptions). Please note that this standard has yet to be
adopted by the EU and may need to be revised if it is not adopted in time for
inclusion in the 2013/14 Code ie 1 January 2013.
51. However, CIPFA/LASAAC is concerned that this standard will not appropriately
reflect the value of some assets and liabilities (particularly assets) to local
authorities, principally those that are not profit-generating. The definition of fair
value in the standard is based on a market price at an exit value and does not
recognise the potential for an asset to contribute to the provision of services.
CIPFA/LASAAC considers that this is not an appropriate measure of the benefits
16
of these assets to local authorities. The proposed amendments to the Code
therefore include a number of additions to the scope exclusions in the standard at
proposed new paragraph 2.10.2.11 The scope exclusions added are at points d)
to g) ie:
Property, plant and equipment – as CIPFA/LASAAC consider that these assets
are largely not profit-generating assets
Non-current assets within the scope of section 4.3 (ie service concession
arrangements) as there are specific measurement requirements for these
assets on initial recognition
Non-current assets held for sale meeting the definition of right-to-buy assets
in accordance with the current approach in the Code that defines the fair
value of these assets as the discounted right-to-buy value, and
Heritage assets measured in accordance with Section 4.10 of the Code – due
to specific measurement and disclosure requirements of this section of the
Code.
52. CIPFA/LASAAC is of the view that largely the assets in Section 4.1 (and the
majority of assets within the scope of Section 4.3) of the Code are not held by
local authorities for profit generating purposes. However, the Exposure Draft of
the 2013/14 Code includes a rebuttable presumption that this is the case.
Therefore where authorities hold assets within the scope of Sections 4.1 or 4.3 for
profit generation this assumption would need to be rebutted and the
measurement and disclosure provisions of Section 2.10 of the Code would apply.
53. As set out in the Exposure Draft, the scope of the proposed amendments exclude
authorities from both the measurement and disclosure requirements of Section
2.10 in relation to specified asset classifications. CIPFA/LASAAC is of the view
that it is arguable that disclosures about fair value measurement might usefully
be required for all fair value measurements required by other parts of the Code.
However, CIPFA/LASAAC’s preferred approach is to exclude those assets that
have a different definition of fair value from both the disclosure and measurement
requirements of the Code. CIPFA/LASAAC considers that this is the clearer option
for local authorities on the introduction of this standard to the Code. More
importantly, it considers that much of the information required by the standard
should already be included in the financial statements of local authorities ie in
accounting policies and significant judgements in relation to the measurement of
property, plant and equipment. It is therefore seeking the views of interested
parties on whether this is the case, and on its preferred approach.
54. The adoption of the Standard in the Code includes the main provisions of the
Standard without significant interpretation as where the provisions of the Code
apply to local authorities they would apply in the same way as for commercial
entities and therefore very little modification is required. The drafting of this
section of the Code therefore includes the main measurement principles and
assumptions and adopts the principal definitions of the Standard as they are likely
to apply to local authorities. In addition, the Code does include explanation of the
fair value hierarchy as this is referred to in other standards and frequently
referred to in the disclosure requirements of the proposed amendments to the
Code.
55. The proposed amendments to the Code have retained the table at paragraph
2.1.2.30. It has been retained in order to demonstrate the different fair value
measurements applicable to the assets and liabilities of local authorities. The
17
table also refers readers of the Code to the different definitions of fair value and
when authorities will need to refer to the definition, measurements and disclosure
requirements of new Section 2.10 of the Code.
56. IFRS 13 includes extensive disclosure requirements in relation to fair value
measurement and CIPFA/LASAAC is of the view that many of the individual
disclosure requirements of the Standard are not applicable to local authorities.
However, these disclosures have been added to the Exposure Draft of the Code.
CIPFA/LASAAC is, however, seeking views of interested parties whether it might
be more effective to only include those disclosures that are definitely relevant to
local authorities. It is also particularly concerned that the disclosures at
paragraphs 2.10.4.1 6) and 8) might not be directly relevant to local authorities.
57. The Standard also includes significant consequential amendments to the Code:
there are amendments to each of the Sections to which the new definition of fair
value applies. These are itemised in the Exposure Draft. This is with the
exception of the definition of fair value for right-to-buy properties that are held
for sale, which retains its current definition. There are also extensive
amendments to Section 7.4 of the Code in relation to its fair value balance sheet
disclosures at paragraphs 7.4.2.13 to 7.4.2.15 following the requirements of the
Standard.
IFRS 13 Fair Value Measurement
Q23 Do you agree with CIPFA/LASAAC’s view that the definition of fair
value in IFRS 13 does not generally apply to property, plant and
equipment held by local authorities and that the use of the
measurement and disclosure requirements of Section 2.10 should be
restricted by a rebuttable presumption that these assets are not
profit generating for local authorities? If not, why not? What
alternatives do you suggest?
Q24 Do you agree with the approach in the Exposure Draft that all the
assets listed in paragraph 2.10.2.11 should be excluded from the
scope of the fair value measurement of the Code? If not, why not?
What alternatives do you suggest?
Q25 Do you consider that the scope exclusions in paragraph 2.10.2.11
should extend to both measurement and disclosure requirements of
the Standard or do you consider that the disclosure requirements
should apply to all assets measured at fair value? Please provide an
explanation for your response.
Q26 Do you agree with the approach to drafting of the fair value
measurement provisions in section 2.10 ie that only the main
principles and assumptions of the Standard are included in the Code?
If not, why not? What alternatives do you suggest?
Q27 Do you consider that the Code should include all the disclosure
requirements of IFRS 13 or do you consider that the Code should
only include the disclosure requirements definitely relevant to local
authorities? Please set out which of the disclosures you consider to
be relevant to your authority.
Q28 Do you consider that disclosures at paragraph 2.10.4.1 6) and 8) are
relevant to local authorities? If yes please set out the type of
18
transactions to which you consider such disclosures apply.
Q29 Do you consider the consequential amendments in relation to fair
value measurement as described in paragraph 57 above adequately
reflect the requirements of adoption of IFRS 13 in the Code? If not,
why not? What alternatives do you suggest?
Service Concession Arrangements (PFI and PPP Arrangements)
58. Interested parties will be aware that there are currently no International Financial
Reporting Standards that deal specifically with the accounting requirements for
the grantor for PFI /PPP arrangements. IFRIC 12 Service Concession
Arrangements, applies only to the operator, typically a private sector entity.
Grantors are normally public sector entities. CIPFA/LASAAC has taken the
opportunity to augment the provisions and guidance in the Code in relation to PFI
and PPP arrangements as new additional guidance is available in the form of
IPSAS 32 Service Concession Arrangements: Grantor. This new additional
guidance mirrors IFRIC 12 on relevant accounting issues (i.e., liabilities,
revenues, and expenses) from the grantor’s point of view. It also uses the same
criteria as IFRIC 12 to determine whether the operator or the grantor controls the
asset used in a service concession arrangement.
59. This guidance in particular sets out the accounting arrangements for:
the recognition of the liability
the inclusion of intangible assets
clarification on the point of recognition and
the accounting treatment where the local authority grants the operator the
right to earn revenue from third party users.
Recognition of the Liability
60. The recognition and measurement of the liability for PFI/PPP arrangements in the
2012/13 Code is based on the principles of IAS 17 Leases. The new guidance
available sets out that the liability recognised is a financial liability, and is
measured under IAS 39 Financial Instruments; Recognition and Measurement,
reflecting (in mirror form) the principles adopted by IFRIC 12. CIPFA/LASAAC’s
preliminary view is that this approach provides a better measurement of the
liability as well as being better mirror of the IFRIC. It therefore proposes that the
Code requires the liability to be recognised and measured as a financial liability in
line with IAS 39 rather than a finance lease liability under IAS 17 (as currently
required by the Code).
61. CIPFA/LASAAC considers that it is possible that any changes to the pattern of the
measurement of this liability might have financial consequences for local
authorities and is seeking evidence as to whether this would be the case.
62. Paragraphs 4.3.2.16-19 of the Exposure Draft include the proposed wording of
the 2013/14 Code on the basis of recognising and measuring the liability as a
financial liability. CIPFA/LASAAC has also included an alternative accounting
treatment with the liability continuing to be treated as finance lease (paragraphs
4.3.2.16-20 of the alternative treatment). This approach would be used as an
19
interim approach if evidence showed that measuring the liability as a financial
liability would have an adverse financial effect on local authorities.
CIPFA/LASAAC is therefore seeking interested parties views on the measurement
of the liability, and whether there is evidence to suggest that measuring the
liability on an IAS 39 basis in 2013/14 would have an adverse financial effect on
authorities.
63. The additional guidance permits the Code to include the grant of the right to the
operator model – under this model the local authority compensates the operator
for the service concession asset by granting the operator the right to earn
revenue from third-parties. It is considered that there are very few examples of
this type of arrangement in operation for local authorities. However, including
these provisions in the Code provides a clear set of accounting arrangements that
will enable any authority considering such an arrangement to evaluate the
financial consequences for its performance statements and financial position.
Interested parties should note that the accounting treatment suggested in the
Code Guidance Notes5 is consistent with the proposed Code requirements.
Intangible Assets
64. The current provisions of the Code do not refer to intangible assets. It is
considered that some PFI/PPP schemes might include intangible assets and
therefore the proposed amendments to the Code include appropriate provision for
service concession assets that are intangible assets.
Assets outside the Scope of Section 4.3 of the Code
65. The 2012/13 Code includes the accounting treatment for those assets that might
be part of a PFI/PPP arrangement but do not meet the control criteria in IFRIC 12,
and are therefore outside the scope of the IFRIC. It is considered that although
these transactions might not be very common for local authorities undertaking
PFI/PPP Schemes these provisions of the Code should be retained. The provisions
of paragraphs 4.3.2.4 - 4.3.2.6 of the 2012/13 Code have therefore been
included in a new Annex to section 4.3.
Assets under Construction
66. Both the 2012/13 Code and the proposed amendments to the 2013/14 Code
require assets to be recognised in accordance with the provisions of the Code in
relation to Property, Plant and Equipment and Intangible Assets (although the
latter would not have been explicit in Section 4.3 of the 2012/13 Code) ie when it
is probable that economic benefits and service potential will flow to the authority
and the cost of the asset can be measured reliably. However, the 2012/13 Code
currently includes the following exemplification of custom and practice in the UK:
“This will be when the asset is made available for use unless the local authority
bears an element of the construction risk, which will not be the case where
standard PFI contract terms are used. Where an authority does bear the
construction risk, it shall recognise an asset under construction prior to the asset
being made available for use where it is probable that the expected future
benefits attributable to the asset will flow to the authority.” (2012/13 Code
paragraph, 4.3.2.9)
5 Code of Practice on Local Authority Accounting in the United Kingdom Guidance Notes for Practitioners
2011/2012 Accounts, CIPFA December, 2011.odule
20
67. The additional guidance in the proposed amendments to the Code, following the
requirements of IAS 16 and IAS 38 sets out that:
“Similar to an asset the local authority constructs or develops for its own use, the
local authority would assess, at the time the costs of construction or development
are incurred, the terms of the contractual arrangements to determine whether
the service potential of the service concession asset would flow to the local
authority at that time.”
68. It is therefore debatable that the requirements of the additional guidance and the
2012/13 Code are requiring a substantially different accounting treatment. The
2012/13 Code anticipates in accordance with custom and practice that the asset
would not be recognised during the construction phase. The proposed
amendments to the Code suggests that recognition might take place
progressively as contractual provisions are met for elements of a scheme,
provided the recognition criteria are met. CIPFA/LASAAC considers that this
change is not likely to represent a significant change in accounting practice for
local authorities and therefore the Code does not include any transitional
provisions in relation to the accounting treatment of assets under construction
under a service concession arrangement.
Disclosures of Service Concession Arrangements
69. In the review of the provisions for Service Concession Arrangements it was
considered that the disclosures governed by paragraph 4.3.4.2 (values and
movements in assets and liabilities and an analysis of future payments over time)
are not required by IFRIC 12. However, these disclosures are required for WGA
purposes and therefore CIPFA/LASAAC will retain these disclosures. Please also
see comments at paragraph 89.
Service Concession Arrangements
Q30 Do you agree with CIPFA/LASAAC that it is appropriate to augment
the provisions of the Code in relation to service concession
arrangements based on the additional guidance now available to it?
If not, why not? What alternatives would you suggest?
Q31 Do you consider that the liability in service concession arrangements
is most effectively measured as a financial liability or a finance lease?
Please set out the reasons for your response.
Q32 CIPFA/LASAAC is proposing that the recognition and measurement of
the service concession liability as a financial liability should be
included in the 2013/14 Code. What do you consider the practical
and financial consequences would be of such a move (please include
in your response to this question your views on the appropriate
timescales for such a change)? Please set out the reasons for your
responses.
Q33 Do you agree that the current provisions in the Code should be
augmented to include the grant of the right of the operator (third
party payment) model from the additional guidance? If not, why not?
What alternatives would you suggest?
21
Q34 Do you consider that the provisions of the Code in Section 4.3 should
be extended to include intangible assets that are included in service
concession arrangements? If not, why not? What alternatives would
you suggest?
Q35 Do you agree that assets that do not meet the control criteria in
Section 4.3 of the Code should be excluded from Section 4.3 and
instead the treatment of such assets be included as an Annex to it? If
not, why not? What alternatives would you suggest?
Q36 Do you agree with CIPFA/LASAAC that the treatment of Assets under
Construction in the proposed augmented provisions of Section 4.3 of
the Code provide substantially the same accounting treatment and
therefore no transitional arrangements are required in the Code? If
not, why not? What alternatives would you suggest?
IFRS 7 Financial Instruments Disclosures – Offsetting Financial
Assets and Liabilities December 2011 70. In December 2011 the IASB issued amendments to IFRS 7 – Offsetting Financial
Assets and Liabilities, requiring information that will enable users of an entity’s
financial statements to evaluate the effect or potential effect of netting
arrangements, including rights of set-off associated with the entity’s recognised
financial assets and financial liabilities, on the entity’s balance sheet. The
requirements of the Standard have therefore been included in the proposed
amendments to Section 7.4 of the Code. It should be noted that this
amendment has not yet been adopted by the EU and if these amendments are
not adopted by the EU by 1 January 2013 they would not be able to be included
in the 2013/14 Code.
71. In addition the proposed amendments to the Code have resulted in a move of
paragraph 7.4.2.4 (introduced to the 2012/13 Code) to paragraph 7.4.4.1 with
paragraph 7.4.4.1 being moved to 7.4.5.16. Note that there have been no
changes to the requirements of paragraph 7.4.2.4.
IFRS 7 Financial Instruments Disclosures – Offsetting Financial Assets and
Liabilities (December 2011 amendments)
Q37 Do you agree that the Code Exposure Draft accurately incorporates
the requirements of the Amendments to IFRS 7 Financial
Instruments: Disclosures (December 2011)? If not, why not? What
alternatives do you suggest?
Other Minor Changes Reflecting Revisions to Accounting Standards,
Codes and Legislation
72. Further minor revisions to accounting standards are also reflected in the proposed
amendments to the 2013/14 Code. Proposed changes to the 2012/13 Code arise
from Deferred Tax: Recovery of Underlying Assets (Amendments to IAS 12)
issued by the IASB in December 2010. The Code paragraph A.1.2 includes
6 Note that the 2012/13 Code’s requirements for offsetting to which these proposed new disclosures relate are
at paragraph 7.4.4.1 but due to this relocation will be moved to paragraph 7.4.5.1.
22
proposed amendments to reflect the changes to the standard. The effective date
of this amendment is 1 January 2012. However, at the time of drafting this ITC
this amendment has not been adopted by the EU. The European Financial
Reporting Advisory Group (EFRAG) EU Endorsement Status Report sets out that it
is expected to be endorsed in Quarter 4 of 2012 and therefore it should be able to
be adopted by the 2013/14 Code. It should be noted, that if these amendments
are not adopted by the EU by 1 January 2013 they would not be able to be
included in the 2013/14 Code.
73. No further accounting standards or legislation or other changes requiring
amendment of the Code (other than those itemised in paragraphs 122-125) have
been identified to date. However, it is possible that additional legislation,
regulations or statutory guidance relating to 2013/14 will be issued prior to the
Code being finalised. If this is the case, CIPFA/LASAAC may incorporate the
requirements into the published Code.
Other Minor Changes Reflecting Revisions to Accounting Standards
Q38 Do you agree that the amendments to the Code accurately reflect the
amendments to IAS 12? If not, why not? What alternatives would
you suggest?
Q39 Are there any further accounting standards or legislative changes
that need to be reflected in the Code?
Group Accounts Standards
74. Interested parties to the consultation on the 2013/14 Code will be aware that the
following Group Accounting Standards have an effective date of 1 January 2013
and therefore would normally fall to be adopted in the 2013/14 Code:
IFRS 10 Consolidated Financial Statements;
IFRS 11 Joint Arrangements;
IFRS 12 Disclosure of Interests in Other Entities;
IAS 27 Separate Financial Statements (as amended in 2011); and
IAS 28 Investments in Associates and Joint Ventures (as amended in 2011)
However, the EFRAG EU Endorsement Status Report of 29 June 2012 sets out
that:
“On 1 June 2012, ARC [Accounting Regulatory Committee] voted on a regulation
that requires IFRS 10, IFRS 11, IFRS 12, IAS 27 and IAS 28 to be applied, at the
latest, as from the commencement date of a company’s first financial year
starting on or after 1 January 2014 (i.e. early adoption would be permitted once
the standards have been endorsed).”
75. The Code is based on IFRS that are adopted by the European Union. From the
extract above formal adoption of the Group Accounting standards appears to be
on or after 1 January 2014 (with early adoption permitted). Taking into account
the significance of the changes that will be brought forward by these standards
23
CIPFA/LASAAC is not minded to adopt them early. The Standards are therefore
not included in this consultation on the 2013/14 Code.
Annual Improvements to IFRSs 2009 – 2011 Cycle
76. Annual Improvements to IFRSs 2009 – 2011 Cycle was issued in May 2012. The
improvements have an effective date of 1 January 2013 and would therefore
normally fall within the scope of the adoption of the 2013/14 Code. However, the
EFRAG EU Endorsement Status Report currently sets out that the amendments
brought about by the Improvements is expected to be endorsed in Quarter 1 of
2013, after the effective application date of the 2013/14 Code. The
Improvements are therefore not included in this consultation.
Interim Outcomes of the CIPFA/LASAAC Post Implementation
Review
77. Interested parties to the consultation on the 2012/13 Code will be aware that
following the first full year implementation of the IFRS-based Code for local
authorities CIPFA/LASAAC wished to undertake a post-implementation review.
The Post Implementation Review considered two principal forms of evidence for
the first stage of the review, 1) the reports from the audit bodies following the
audits of the 2010/11 financial statements and 2) the responses to questions
included in the 2012/13 ITC on the post-implementation review. In addition the
Review benefits from practitioner representation (including the Vice Chair of the
Local Authority Accounting Panel) and audit body representation from across the
jurisdictions of the UK.
78. This section of the consultation sets out the significant proposed amendments
that the Post Implementation Review has identified as clarifications to the Code
resulting from the issues raised. In addition the Post Implementation Review
Group has recommended a number of areas where additional or revised
application guidance may need to be considered and CIPFA/LASAAC has referred
these issues to the Local Authority Accounting Panel.
Section 2.3 Government and Non-Government Grants
79. Currently, the Code does not require separate identification of restricted balances
of unspent revenue grant, but the application guidance recommends that where
conditions have been met or there are no conditions such grants should be held in
earmarked reserves. As these balances can only be applied for the purposes of
the grant and/or in specified financial years and are likely to be subject to grant
restrictions, it would be inappropriate for these balances to be included in the
General Fund as if they were balances available for general use. CIPFA/LASAAC
proposes that the amendments to the Code encourage the approach that is
currently recommended in application guidance. CIPFA/LASAAC has therefore
introduced a new paragraph at 2.3.2.17 to facilitate this.
Section 3.4 – References to Exceptional Items
80. Currently, the 2012/13 Code includes four references to exceptional items.
Paragraph 3.4.2.80 of the Code requires that exceptional items and prior period
adjustments are included in the summary of significant accounting policies where
these items have a significant effect on the amounts disclosed in the financial
statements. The PIR Group recommended that references to exceptional items
should be removed from this requirement as the term “exceptional items” is not
24
used in IFRS. This recommended amendment is thus included at paragraph
3.4.2.80.
81. The non-statutory Housing Revenue Account disclosures for England, Scotland
and Wales include a requirement to disclose exceptional items. These disclosure
requirements are considered in the review of disclosures paragraph 89 below.
Section 4.1 of the Code Property, Plant and Equipment – the use of the term
Enhancement
82. The review process has identified that the paragraphs on property, plant and
equipment recognition use the term ”enhancement” in a way that is not used in
IAS 16. This may have caused some confusion for practitioners used to applying
the SORP, where enhancement was a defined criterion for capitalisation.
References to enhancement have therefore been removed in the proposed
amendments and replaced by “adding to” an item of property, plant or
equipment, the term used in IAS 16. Paragraphs 4.1.2.17 to 4.1.2.19 of the Code
contain proposed minor clarifications that serve to align the Code more closely to
the provisions of IAS 16 which do not refer to enhancements or restoration. A
minor correction to paragraph 4.1.2.18 has also been identified.
Section 4.1 of the Code Property, Plant and Equipment – Valuation Issues
83. A minor clarification of the requirements relating to decreases in the carrying
amount of an item of property, plant and equipment in relation to paragraph
4.1.2.34 has been removed from this paragraph as the qualifying commentary
about the non-specific nature of a revaluation decrease is not directly supported
by the standard. The text has therefore been removed from the Code.
84. The issue was raised that there has not been a complete understanding of the
requirements of the Code as it adopts IAS 16 in relation to frequency of
revaluations. There are currently no adaptations in relation to the frequency
itself (although the Code states that valuations should be carried out at intervals
of no more than five years) and therefore the Code requires that the provisions of
IAS 16 are followed even if they are not explicitly stated within the Code. This
might have resulted in an area of confusion for local authorities. The Post
Implementation Review Group has therefore added proposed amendments to
paragraphs 4.1.2.35 and 4.1.2.36 directly based on the wording of IAS 16 to
clarify the requirements. CIPFA/LASAAC is aware that this might represent a
change in practice for some local authorities and will work with the Local
Authority Accounting Panel to develop appropriate application guidance for local
authorities.
Section 4.2 Leases and Lease Type Arrangements
85. The Post-Implementation Review Group is aware that some authorities are having
difficulties in the interpretation of issues at the inception of a lease or when there
are changes in the terms of a lease. A number of minor clarifications have
therefore been added to Section 4.2 Leases and Lease Type Arrangements of the
Code which follow the Code’s adoption of IAS 17 Leases. The following changes
have been proposed:
Definitions of the inception of the lease, the commencement of the lease term
and the lease-term have been added at paragraphs 4.2.2.4 – 4.2.2.6.
A new paragraph on the classification of leases has been added at 4.2.2.9.
25
Minor clarification of the wording of paragraph 4.2.2.13 has been added
which relates to changes in lease terms – note that this is not a substantial
change.
86. The Post Implementation Review Group identified that the Code did not assist
practitioners where no premium is paid but lease rentals and payments are at a
peppercorn ie for non-commercial arrangements. IAS 17 makes the presumption
that leases are entered into on a commercial basis. The PIR Group recommended
to CIPFA/LASAAC that the Code includes an additional commentary which
indicates that the assessment of lease classification of assets transferred to
another entity where no lease premium is paid but on the basis of a peppercorn
rent would exclude the assessment of the present value of the minimum lease
payments being at least substantially all of the fair value of a leased asset.
Proposed amendments have therefore been made to new paragraph 4.2.2.10 to
reflect this.
Section 4.9 Non-Current Assets Held for Sale and Discontinued Operations
87. The Post Implementation Review Group considered that the four specific criteria
which must be met before an asset can be classified as being held for sale
arguably gives these requirements greater weight than in IFRS 5 Non-Current
Assets Held for Sale and Discontinued Operations. The Post Implementation
Review Group has therefore recommended that the wording of the provisions of
the Code be brought closer to that of the Standard. It is likely that this is a
matter of emphasis only.
Complete Set of Financial Statements
88. The Post Implementation Review Group has undertaken the initial stages of a
review of the complete set of financial statements. Its initial view is that the
financial statements largely achieve their intended purpose. CIPFA/LASAAC
considers that at this juncture no further changes be considered to these
statements and instead that resources be channelled into finding good practice
examples of these statements and disseminating this via application guidance.
Review of Disclosures
89. The Post Implementation Review Group identified that there are a number of
disclosures within the Code that are not required by financial reporting and
accounting standards or by a clear statutory requirement to include such
information as disclosure notes in the financial statements, although a number of
the reporting requirements relate to statutory accounts or requirements. These
disclosure requirements have in all likelihood arisen as a result of custom and
practice or for a clear financial reporting need eg the disclosure of the breakdown
of audit fees. The Group recommended that these disclosures be reviewed as a
part of the consultation process on the 2013/14 Code. In addition these
disclosures are subject to discussions between CIPFA, the four administrations
and other interested parties to seek their views on whether they consider these
disclosures as being necessary (and if so might instead bring forward appropriate
statutory amendments).
90. The relevant disclosures are listed at Appendix A to this ITC with initial comments
from CIPFA/LASAAC. The PIR Group considered that these disclosures be
reviewed against the criteria that have been used in previous reviews of
disclosures eg on the introduction of the first IFRS based Code ie:
26
relevance/applicability to local authorities and/or that these transactions
normally represent material transactions for local authorities
the availability of information in other disclosures or opportunities for
reporting this information by means of other media
consistency with the FReM, CIPFA/LASAAC has augmented this criteria to
include - subject to the disclosure assisting local authorities to present a true
and fair view of its financial statements.
91. A number of these disclosures are also reported under the Whole of Government
Accounts requirements. CIPFA/LASAAC recommends that these disclosures are
retained but will consider these in the forward work programme for the Code.
Interim Outcomes of the CIPFA/LASAAC Post Implementation Review
Q40 Do you agree that the Code should encourage the treatment of
separate identification and disclosure of restricted balances of
unspent revenue grant? If not, why not? What alternatives do you
suggest
Q41 Do you agree that the Code should remove references to exceptional
items from the Code and specifically from paragraph 3.4.2.80? If not,
why not? What alternatives do you suggest?
Q42 Do you agree with the proposed amendments to the Code to remove
the term enhancement ie paragraphs 4.1.2.17 to 4.1.2.19 including
the minor correction? If not, why not? What alternatives do you
suggest?
Q43 Do you agree with the proposed amendment to paragraph 4.1.2.34 in
relation to decreases in the carrying amount of property, plant and
equipment? If not, why not? What alternatives do you suggest?
Q44 Do you agree that the proposed clarifications of the requirements for
the frequency of property valuations in paragraphs 4.1.2.35 and
4.1.2.36 are appropriate interpretations of IAS 16 Property, Plant and
Equipment? If not, why not? What alternatives do you suggest?
Q45 Do you agree that the proposed minor amendments and additions to
paragraphs 4.2.2.4-4.2.2.6, 4.2.2.9 and 4.2.2.13 are in accordance
with the Code’s adoption of IAS 17 Leases? If not, why not? What
alternatives do you suggest?
Q46 Do you agree that the proposed additional text at proposed new
paragraph 4.2.2.10 adequately reflects the substance of the
arrangements when local authority leased assets are leased without
premiums but at a peppercorn or a nominal amount for non-
commercial leases? If not, why not? What alternatives do you
suggest?
Q47 Do you agree that the proposed amended text in paragraphs 4.9.2.13
and 4.2.9.14 relating to assets held for sale, appropriately reflects
the requirements of IFRS 5 as adopted by the Code? If not, why not?
What alternatives do you suggest?
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Q48 Do you concur with the view of the Post Implementation Review
Group in relation to its initial view that no changes are required to
the complete set of financial statements? If not, why not? What
alternatives do you suggest?
Q49 Do you concur with CIPFA/LASAAC’s appraisal for the proposed
retention, amendment, or deletion of the relevant disclosures listed in
Appendix A. If not, please explain why not, clearly itemising the
disclosure to which you refer. What alternatives do you suggest?
Accounting for Schools in Local Government (in England and Wales
only)
92. Following last year’s consultation on the Code and the low response rate to the
separate Invitation to Comment Accounting for Non-Current Schools’ Assets,
CIPFA/LASAAC established a Working Party to consider Accounting for Schools in
Local Government.
93. As a part of this Working Party’s preliminary analysis of the Terms of Reference
and following a recommendation from the Financial Reporting Advisory Board
(FRAB), the Working Party considered whether local authorities control the bodies
who might recognise the non-current assets under either IAS 27 Separate and
Consolidated Financial Statements or SIC 12 Consolidation – Special Purpose
Entities ie schools governing bodies or school trusts.
94. It was not possible to consider the trusts in which some assets are vested but it
was possible to consider whether or not governing bodies could be consolidated.
Appendix B to this ITC sets out the full basis of conclusions of the Working Party.
This is summarised below.
Governing Bodies Are Capable of Being Considered as Entities
95. The Working Party considered that, under the normal treatment of entities under
the IFRS based Code, governing bodies that have delegated budgets are capable
of being regarded as entities. They have corporate status and are able to enter
into contracts, authorise expenditure and some can employ teachers.
Control Test under IAS 27 Separate and Consolidated Financial Statements
96. It appears on examination of the control test that the governing bodies of
community (and community special schools) schools in England would be
controlled by local authorities. This is based on the authority’s ability to control
the significant operational policies of the governing body, particularly the
authority’s scope to initiate the statutory proposals to make organisational
changes to the school (and again particularly focusing on the ability to issue
proposals for discontinuance) and thus benefit from these procedures by
achieving its objectives (for example, so as to achieve its duties under Section 13
of the Education Act 1996). However, as the income, expenditure and assets are
already recognised in local authority financial statements it is unlikely that group
financial statements would present a significantly different analysis from the
authority’s single entity financial statements.
97. The Working Party has also considered the position for the four main categories
(including community special schools) of maintained schools in Wales. Although
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the position is very finally balanced the Working Party considers that the balance
of control for community schools in Wales lies with the authority as community
schools governing bodies cannot initiate their own statutory proposals for school
organisational changes (with the exception of the proposals to change category of
school). In addition, although following any objections the decisions are referred
to Welsh Ministers, the Ministers cannot modify a proposal in a way that would in
effect substitute another proposal for the published one.
98. However, for the other categories of maintained school ie voluntary controlled,
voluntary aided, foundation schools in England and Wales and foundation special
schools in England, to balance this control these governing bodies can initiate
their own statutory proposals to change the organisation of the school including
school closure (see Appendix B – draft basis of conclusions on the consultation
pages of the CIPFA website). In addition, in England the governing body and
trustees of a foundation or a voluntary school can appeal against a decision on
any proposals that apply to their school. The decision is then with the School’s
Adjudicator and therefore ultimately the authority does not have control over this
process. This analysis is therefore not conclusive for foundation (and foundation
special schools in England), voluntary controlled and voluntary aided schools.
SIC 12 Consolidation - Special Purpose Entities
99. The Working Party also considered the relationship between the governing bodies
of the remaining three categories of maintained school in England and in Wales
(including foundation special schools in England) and local authorities under SIC
12 Consolidation - Special Purpose Entities, with particular regard to the
indicators of control under paragraph 10 of the SIC. It concluded that it could be
argued that there was a beneficial relationship (in that if the governing bodies
were not providing school places the authority would have to do so itself) but
considered that this was limited by the lack of positive evidence against the other
indicators. Authorities may have exposure to risk of loss, but there is no
evidence that this is a significant risk to the authority. Also authorities in England
are unable to avail themselves of the surpluses that might be created by schools.
Therefore the Working Party is of the view that local authorities do not control the
governing bodies of the three other categories of maintained school in England.
100. In Wales the position is even more finely balanced as there is the theoretical
ability to be able to utilise any positive position in schools budget but with a
similar position in terms of the risk of loss. The Working Party is of the view,
however, that there is no clear case for control of schools governing bodies in
Wales for the foundation, voluntary controlled and voluntary aided schools.
Impact on the Financial Statements of Local Authorities
101. As entities within the control of local authorities community and community
special schools governing bodies in England and Wales would fall to be reported
within local authorities’ Group Accounts. The Working Party is of the view that
any consolidation of local authority interests in community school governing
bodies within local authority Group Accounts would not produce a substantially
different report for the Comprehensive Income and Expenditure Statement and
Balance Sheet. The only statements where there would be a different analysis of
schools’ financial information would be in the Cash Flow Statement and the Group
Segmental Analysis.
102. The Working Party is therefore of the view that it would not be useful to the
readers of the financial statements to have two separate reports of the same
information albeit with a different subjective analysis or where there are not
29
materially different reports of cash flows. Therefore the Working Party have
proposed an adaptation to the Code’s definition of the “single entity financial
statements” ie that it is extended to include the income, expenditure, assets,
liabilities, reserves and cash flows of any governing bodies that are required to be
consolidated into local authority financial statements. This definition would in
effect form a sub-consolidation of the governing bodies within the group
boundary of the authority. It would require an adaptation to Chapter Nine of the
Code. CIPFA/LASAAC proposes that such an adaption is made.
Non- Current Asset Recognition Decision
103. The Working Party did not identify any further recognition criteria than those
identified by CIPFA/LASAAC in its consultation last year. It considered the impact
of the above conclusions about the control relationship (between local authorities
and maintained schools’ governing bodies) on the recognition of non-current
assets for the governing bodies that are not in the control of local authorities.
104. For categories of school not deemed by the Working Party to be within the local
authority boundary (ie not within the control of the local authority), the Working
Party consider that assets that are not within the ownership of local authorities
and whose benefits and day to day use is within the control of the governing body
(under delegated arrangements to the head teacher) should not be recognised in
local authority balance sheets. This might give rise to queries in relation to
school playing fields that are traditionally owned by local authorities. However,
the Working Party considers that the same arguments are likely to apply to these
assets.
105. For community schools whose governing bodies are in the control of the local
authority the Working Party considers that, as:
ownership resides within the authority
the entity (the governing body) in control of its day to day use is also
within its group boundary
authorities control the major organisational changes in relation to the
school and (via the admission’s policy) who receives the benefits
it would follow that the local authority would recognise the assets in its balance
sheet.
Income and Expenditure Recognition
106. The recognition of income and expenditure in relation to schools would need to
follow the local authority’s responsibilities. Dedicated Schools Grant in England
or Revenue Support Grant for authorities in Wales would be recognised as now
and expenditure would need to be recognised as incurred ie recognition of
employee expenditure where the authority is the employer or when necessary as
third party payments to schools. This is in line with the normal requirements of
income and expenditure recognition for the Code.
Schools’ Balances
107. In England and Wales, the amount of unspent budgets by maintained schools is
normally presented as usable revenue reserves earmarked within the General
Fund Balance. However, this presentation is not based on a specification in the
Code about the status of these reserves, which has also been the subject of
30
debate and is a matter of interpretation. The status of schools’ balances is
discussed in more detail in the draft Basis of Conclusions (accompanying this ITC
and available on the consultation pages of the CIPFA Website) which sets out that
there are two interpretations of the status of school’s balances. In accounting
terms, CIPFA/LASAAC considers that the substance of the transaction is that
these reserves are the reserves of the individual school and should be recognised
accordingly in the financial statements of local authorities. Following the
adaptation proposed in paragraph 102 above these reserves would only be
recognised in the case of community and community special schools in England
and Wales. Where authorities consider that a legal interpretation might require a
different treatment, they would need to recognise the reserves accordingly. This
has been accommodated in the proposed Application Note.
Application of the Code’s Requirements and Transitional Treatment
108. CIPFA/LASAAC considers that the accounting analysis summarised above and set
out in Appendix B to this ITC is complex. However, it is based on the accounting
standards adopted by the Code with the exception of the adaptation referred to in
paragraph 102. It proposes, however, that to assist authorities it will add an
Application Note in a new Appendix D to the Code. This Application Note is
founded in the Basis of Conclusions of the Working Party and sets out the
principles that would apply to the accounting treatment for the income,
expenditure, assets and liabilities, reserves and cash flows of maintained schools
in England and Wales. This new application note is listed with the other proposed
amendments to the Code.
109. CIPFA/LASAAC considers that some authorities will need to de-recognise assets
and liabilities of some categories of maintained school. In addition to the
application note set out above CIPFA/LASAAC invites interested parties to
comment on whether they need specific application guidance on the de-
recognition process. CIPFA/LASAAC can then make the relevant
recommendations to the Local Authority Accounting Panel.
Accountability for the Income and Expenditure of Maintained Schools
110. CIPFA/LASAAC is aware that the governing bodies of voluntary controlled,
voluntary aided, foundation and foundation special schools not being within local
authorities reporting boundary may have repercussions for other reporting
requirements and other duties of the authority. CIPFA/LASAAC is seeking
interested parties’ views on what they consider these issues to be and whether
this leads to any consequential difficulties for their accountability for such
expenditure (for example, under the duties of the S151 officer of the authority).
Accounting for Schools in Local Government
Q50 Do you agree with the views of the Working Party that governing
bodies are entities capable of consideration for consolidation into the
local authority boundary? If not, why not? Please give the reason for
your response.
Q51 Do you agree with the analysis of the Working Party in relation to its
views on consolidation or non-consolidation of governing bodies (see
Appendix B)? If not, why not? Please set out the reason for your
response across the various categories of maintained schools.
31
Q52 Do you agree with the Working Party in relation to its consequential
analysis in relation to schools’ non-current assets? If not, why not?
Please give the reason for your response.
Q53 Do you agree with the Working Party in relation to its proposal for
adaptation to the Code in terms of the recognition of the income,
expenditure, assets, liabilities, reserves and cash flows of governing
bodies controlled by schools in the single entity financial statements
of local authorities? If not, why not? Please give the reason for your
response.
Q54 Do you agree with the Working Party’s view on the treatment of
income and expenditure relating to maintained schools? If not, why
not?
Q55 Do you agree with the use of an application note in the Appendix to
the Code? If not, why not?
Q56 Do you agree that the adaptation to the Code referred to in question
53 and the consideration of governing bodies as separate entities
capable of consideration for consolidation in local authority financial
statements represents a change in accounting policy and these
changes should be applied from the 2013/14 year and applied
retrospectively? If not, why not?
Q57 Do you consider that the conclusions of the Working Party in relation
to the non-consolidation of the income and expenditure of the
governing bodies of voluntary controlled, voluntary aided and
foundation (and foundation special schools in England) gives
authorities any consequential difficulties for their accountability for
such expenditure, for example, under the duties of the S151 officer of
the authority? If so please set out what these issues would be.
Q58 Do you consider that further detailed application guidance is needed
for authorities as a consequence of the proposed treatment for the
non-consolidation of the income and expenditure of the governing
bodies of voluntary controlled, voluntary aided and foundation and
foundation special schools? If so, please set out the areas where you
consider detailed application guidance might be needed.
End of the Landfill Allowance Trading Scheme in England
(application also to the Scheme as it applies in Scotland)
111. The Waste Review7 has announced the ending of the Landfill Allowance Trading
Scheme (LATS) after the 2012/13 scheme year in England. The provisions for
England for LATS therefore need to be removed from the Code, effective from the
2013/14 edition. It should be noted that the Scheme remains suspended in
Scotland. CIPFA/LASAAC considers that currently the provisions of paragraphs
2.4.2.1 to 2.4.2.7 should be removed from the Code and appropriate
amendments be made to the introductory paragraphs at 2.4.1.1 to 2.4.13. The
7 Government Review of Waste Policy in England 2011, DEFRA June 2011
32
requirements for Landfill Allowance Schemes in Wales and Northern Ireland
remain unchanged.
End of the Landfill Allowance Trading Scheme in England (application also to the
Scheme as it applies in Scotland)
Q59 Do you agree that the provisions of paragraphs 2.4.2.1 to 2.4.2.7
should be removed and appropriate consequential amendments be
made? If not, why not? What alternatives would you suggest?
Police and Fire Reform (Scotland)
112. The Police and Fire Reform Bill (Scotland) 2012 was introduced to the Scottish
Parliament in January this year and passed Stage 3 on 27 June 2012. The Bill
introduces the requirement to establish a new single Police Service and a new
single Fire and Rescue Service (anticipated to be from 1 April 2013). The Bill
also introduces a requirement for the creation of the Scottish Police Authority
responsible for the governance, oversight and maintenance of the Police Service.
These new bodies are not anticipated to be bodies that follow the Code and
therefore, subject to legislative confirmation references to Police and Fire Boards
will be removed from the Code.
Police and Fire Reform (Scotland)
Q60 Do you agree that subject to legislative confirmation references to
Police and Fire Boards in Scotland should be removed from the Code?
If not, why not? What alternatives would you suggest?
Localism Act 2011
113. The Localism Act 2011 provides local authorities with a new general power of
competence, allowing them to do anything that an individual generally may do,
other than that which is specifically prohibited. A respondent to last year’s
consultation suggested that authorities might wish to enter into derivative
financial instruments using the power and that the Code might consider adding
guidance on this. The following commentary by CIPFA/LASAAC is not in any way
a commentary on whether or not authorities are able to enter into derivative
financial instrument transactions. It is for the individual authority to decide
whether or not it is lawful to enter into such transactions.
114. CIPFA/LASAAC is of the view that IAS 39 Financial Instruments; Recognition and
Measurement covers the accounting requirements for derivatives and is adopted
by the Code. Therefore where the Code does not refer to the accounting
treatment for particular transaction authorities should refer directly to the IAS
although it should be noted this must be as adopted by the EU. A minor
amendment to clarify this has been included in the Code. Consequently, at this
juncture CIPFA/LASAAC considers that there is no need for any further
amendments to the Code on this issue.
33
Localism Act 2011
Q61 Do you agree with CIPFA/LASAAC that the Code need only include a
minor amendment and need not include any significant additional
provisions in relation to accounting requirements for derivatives? If
not, why not? What alternatives would you suggest?
CIPFA’s Code of Practice on Transport Infrastructure Assets
Background
115. The Code of Practice on Transport Infrastructure Assets (the Transport
Infrastructure Code) was published in March 2010. The Transport Infrastructure
Code is intended to serve as best practice guidance for those who are responsible
for the management of infrastructure assets and as a tool for those who audit
their performance. A key principle that underpins the Code is that the same data
should be capable of serving the needs of asset management, financial
management, budgeting and financial reporting. The Transport Infrastructure
Code therefore uses a Depreciated Replacement Cost (DRC) approach to
valuation that provides the current cost of replacing an asset with its modern
equivalent asset, less deductions for all physical deterioration and impairment.
116. CIPFA/LASAAC consulted on voluntary early adoption of the measurement
requirements of the Transport Infrastructure Code in the Accounting Code as part
of its 2012/13 consultation. The responses reported substantial practical
difficulties in implementing the Transport Infrastructure Code. CIPFA/LASAAC
therefore considered that it would not be appropriate at that juncture to include
either of the voluntary options proposed in the Accounting Code.
117. HM Treasury has set a timetable for gradual transition to reporting on a current
cost basis for transport infrastructure assets within the Whole of Government
Accounts (WGA). Interested parties will be aware that the WGA timetable
commenced in 2009/10. The remainder of this timetable will require the
withdrawal of historical cost based reporting by 2012/13. Interested parties will
also be aware that the current measurement basis led to one of the qualifications
of the Whole of Government Accounts, and that this will be an area for increasing
scrutiny until such time as the data provided for WGA purposes is sufficiently
robust that the qualification can be removed.
Adoption of Measurement Provisions of the Code of Practice on Transport
Infrastructure Assets
118. The Accounting Code currently measures infrastructure assets at depreciated
historical cost. Whilst this is compliant with the requirements of IFRS it is not
likely to be the most appropriate measurement base for the transport
infrastructure assets of local authorities. CIPFA/LASAAC has for many years
expressed the view that current value accounting is the more appropriate
measurement base for local authority assets.
119. CIPFA/LASAAC also recognises that until the Accounting Code adopts the
measurement requirements of the Transport Infrastructure Code authorities are
likely to need to operate dual reporting arrangements.
120. Given its views on the benefits of current value accounting, and taking into
consideration the benefits of aligning the measurement principles of both Codes,
34
CIPFA/LASAAC considers that only insurmountable practical issues will prohibit a
future move to using DRC as the measurement base. CIPFA/LASAAC is therefore
proposing to require full adoption of the measurement requirements of the
Transport Infrastructure Code in the Accounting Code from the 2014/15 financial
year (including comparative information from 2013/14). However, it is seeking
local authorities’ and other interested parties’ views on the practical issues they
will face prior to full adoption. CIPFA/LASAAC is particularly seeking views on the
costs and benefits of the move to this measurement base, bearing in mind the
requirement to provide sufficiently robust data for WGA purposes.
121. CIPFA/LASAAC wishes to allow authorities sufficient time to ensure that their
management information and other systems are able to provide the robust data
needed to support the carrying value of the assets reported in the financial
statements, prior to introducing these changes. CIPFA/LASAAC is therefore
interested in evaluating any evidence interested parties can provide regarding the
implications of introducing current value as the measurement basis in 2014/15.
In order to assist interested parties with their assessment of the practical issues
relating to the adoption of the DRC measurement requirements in the Accounting
Code, Appendix C to this ITC shows the information that authorities will need to
disclose. This is in the form of an extract of the additional columns required to be
added to local authorities’ property, plant and equipment note to demonstrate the
anticipated additional information requirements.
CIPFA Code of Practice on Transport Infrastructure Assets
Q62 Do you agree with CIPFA/LASAAC’s proposal to move to measuring
transport infrastructure assets at DRC (in accordance with the
requirements of the Code of Practice on Transport Infrastructure
Assets) in the 2014/15 Code? If not, why not? Please give reasons
for your answer. What alternatives would you suggest?
Q63 What practical issues do you consider local authorities would face in a
future move to the measurement of transport infrastructure assets on
a DRC basis? Please set out how you consider these practical issues
will impact on financial reporting of transport infrastructure assets.
Please also set out the costs and benefits of such a future move,
bearing in mind the requirement to provide sufficiently robust data
for WGA purposes.
Local Government Finance Bill 2011
122. The Local Government Finance Bill was introduced to Parliament in December
2011. The Bill will bring forward a number of significant changes to local
government finance.
123. The Business Rates Retention Scheme (England) to be implemented from 1 April
2013 will permit local authorities to retain a proportion of the percentage of total
business rates. The Scheme will include:
a duty for billing and precepting authorities to pay a “tariff” to or receive a
“top-up” from central government and for billing authorities to make
payments to upper tier authorities
a “levy” on disproportionate growth and a “safety net” payment
35
allowing authorities to retain in full the rates growth in designated Tax
Increment Financing and Enterprise Zone Areas
local authorities can chose to form pools and be treated as a single authority
under the Scheme.
It is likely that some amendments to the Code’s requirements for accounting for
non-domestic rates will be required to reflect these developments.
124. In addition the Bill also requires that authorities establish a council tax reduction
scheme (which replaces council tax benefit schemes) by 31 January 2013. It is
not at this stage clear that this will have a significant impact on the provisions of
the Code.
125. The timetable for the legislative provisions to bring forward the changes outlined
above is unlikely to coincide with the production timetables for the 2013/14 Code.
CIPFA/LASAAC has therefore agreed to issue an Update to the 2013/14 to take
forward the accounting requirements needed to implement the new system for
Business Rates (and the council tax reduction scheme should this also require
changes to the Code).
Further Guidance
126. CIPFA/LASAAC would be interested to hear interested parties’ views on whether
there are any areas within the Code where additional guidance would be
welcomed or improvements to the Code could be made. Interested parties are
asked to identify areas where additional guidance or improvements would be
helpful, and provide details of any difficulties being experienced.
Further Guidance
Q64 Are there any areas within the Code where additional guidance or
improvements to the Code would be helpful? Please support your
answer by giving details of the difficulties being experienced.