The professional bodies have released an exposure draft (ED) on the proposed amendments in the 2017/18 code covering changes in accounting standards and other issues on which CIPFA/LASAAC are  seeking views.

Key proposals include a new principles-based approach to narrative reporting, with the ED stating that ‘narrative reporting requirements should encourage local authorities to tell their story and not be overly prescriptive in nature.’

CIPFA and LASAAC also want to reinforce the provisions on going concern reporting, in order to strengthen them, and review the accounting policies provisions in the code, with the aim of encouraging local authorities to avoid a ‘boilerplate’ approach.  The ED says they want to encourage local authorities to ‘consider innovative ways of including their accounting policies in their financial statements to engage the users of the financial statements and ensure that the accounting policies tell the individual authority’s story.’

In addition, the changes to the code include a new disclosure on transaction costs for pension fund investments, plus narrow scope amendments to International Financial Reporting Standards, and legislative changes.

The ED also includes two new appendices relating to provisions for the code’s future adoption of IFRS 9 Financial Instruments and of IFRS 15 Revenue from Contracts with Customers, two standards that will apply from 1 April 2018, and would be reflected in the 2018/19 code.

CIPFA/LASAAC say that both of these standards will require judgements by accounts preparers, as well as being likely to require new information and new systems or changes to existing systems. They are therefore consulting on including these two standards in two new appendices to the 2017/18 code so that local authorities will have adequate time to make effective preparations for their introduction. The code will not permit early adoption of these standards.

IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement and includes  a single classification approach for financial assets driven by cash flow characteristics and how an instrument is managed; a forward looking ‘expected loss’ model for impairment rather than the ‘incurred loss’ model under IAS 39, and new provisions on hedge accounting.

CIPFA/LASAAC say there is a possibility that the changes introduced by the standard will have a timing and budgetary impact on local authorities, depending on the individual circumstances of each authority. 

IFRS 15 replaces IAS 18 Revenue and IAS 11 Construction Contracts and their associated interpretations. The core principle in IFRS 15 for local authorities is that they should recognise revenue to depict the transfer of promised goods or services to the service recipient or customer in an amount that reflects the consideration to which the authority expects to be entitled in exchange for those goods or services.

CIPFA/LASAAC note that recognition of revenue for local authorities has rarely been a complex issue. However, for the more complicated transactions that a local authority may increasingly need to enter into, IFRS 15 will require that professional judgement is made. Again CIPFA/LASAAC is keen to understand the potential impact of the standard on local authorities’ resources and financial statements.

IFRS 15 introduces substantial new disclosure requirements. CIPFA/LASAAC considers that local authorities should only include those disclosures for revenue from contracts with service recipients if the information relating to the disclosure is material to its financial statements, but want to test this via the consultation.

Comments on the ED on the local authority accounting code of practice close on 7 October and details are here.