The Code has been revised to take into account the latest International Financial Reporting Standards (IFRS), IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers  prepared under IFRS, which have been adopted as the basis for public sector accounting in the UK.

The 2018/19 Code has been developed by CIPFA/LASAAC and has effect for financial years commencing on or after 1 April 2018.

 The latest IFRS standards, effective for listed entities from accounting periods starting 1 January 2018, are meant to improve transparency around the effect of transactions on local authority finances.

This should allow users to better understand local authority financial statements and increase effective decision making, stewardship and accountability.

The Code specifies the principles and practices of accounting required to prepare financial statements which give a true and fair view of the financial position and transactions of a local authority. The Code is updated annually.

This 2018/19 edition of the Code introduces two substantial new financial reporting standards and amended, or reporting requirements in a number of areas, in particular:

A fully revised chapter seven (Financial Instruments) to reflect the Code’s adoption of IFRS 9. The Code will adopt the new classification and measurement requirements for financial assets, the expected credit loss impairment model and disclosure requirements as a consequence of the adoption of the standard.

There have also been consequential amendments to section 3.4 to reflect the amendments to the Comprehensive Income and Expenditure Statement as a result of the adoption of the standard.

Amendments have also been made to a renumbered section 5.2 (Debtors) of the Code to introduce the incurred loss model for the impairment of non-contractual debts principally council tax, non-domestic rates and district rates and including relevant disclosure requirements as a consequence of the expected credit loss model for impairment being introduced by the adoption of IFRS 9.

A fully revised section 2.7 (Revenue from Contracts with Service Recipients) to introduce IFRS 15 reflects the adoption of the comprehensive recognition framework and disclosure requirements under IFRS 15. There are also consequential amendments to sections:

    5.1 (Inventories), to reflect the changes to the measurement of work in progress

    5.2 (Work in Progress (Construction Contracts)) has been withdrawn as a result of the withdrawal of IAS 11 Construction Contracts

    5.3 (renumbered to 5.2) (Debtors), to reflect the new definition of income, and

    8.1 (Creditors), again to reflect the new definition of income.

Don Peebles, head of policy and technical UK at CIPFA, said: ‘CIPFA/LASAAC has worked hard, starting as early as 2015, to ensure that it has understood the impact of these standards and particularly IFRS 9 on local authority accounts and finances. 

‘Within the boundaries of effective financial reporting, CIPFA/LASAAC has been concerned to understand both the practical and technical aspects of the standard, and have supported the work of government on statutory mitigation for particular investment vehicles.’

To give local authorities more time to get to grips with and prepare for the effects of these two new IFRS standards, the agreed Code provisions on both standards were issued a year early, alongside the 2017/18 Code.

In December 2017, CIPFA also issued early guidance, IFRS 9 Financial Instruments: An Early Guide for Local Authority Practitioners, to help support local authorities transition to the new standard.

Both standards could impact bottom-line financials and have budgetary effects, particularly in terms of the timing of recognition of the relevant transactions.

The Code applies formally in Great Britain to local authorities, fire authorities (England and Wales), joint committees and joint boards of principal authorities. In Northern Ireland it applies to all district councils. The Code also applies to police and crime commissioners and other police bodies, as relevant.

The joint board group at CIPFA/LASAAC is also monitoring the impact of the IFRS 9 accounting treatment of collective investment vehicles and will keep this situation under review.

Code of Practice on Local Authority Accounting in the United Kingdom 2018/19

IFRS 9 Financial Instruments: An Early Guide for Local Authority Practitioners

Report by Sara White