2017/18 Code of Practice on Local Authority Accounting in the United Kingdom: Invitation to Comment

CIPFA/LASAAC has released the 2017/18 Code of Practice on Local Authority Accounting in the United Kingdom (the Code) Exposure Drafts (EDs) and Invitation to Comment (ITC) for public consultation.

2017/18 Code of Practice on Local Authority Accounting in the United Kingdom: Invitation to Comment

The 2017/18 Code will apply to accounting periods starting on or after 1 April 2017. The proposed amendments in the 2017/18 Code cover changes in accounting standards and other issues on which CIPFA/LASAAC wishes to seek interested parties' views.

The consultation will close on 7 October 2016

Issues considered in the consultation

The changes being proposed in the ITC are as follows:

  • a new principles-based approach to narrative reporting
  • a review of the Codes provisions on going concern reporting
  • a review of accounting policies provisions in the Code
  • new disclosure on transaction costs for pension fund investments
  • narrow scope amendments to International Financial Reporting Standards
  • legislative changes
  • a new appendix including the provisions for the Code’s adoption of IFRS 9 Financial Instruments (note this new appendix will apply to the 2018/19 financial statements)
  • a new appendix including provisions for the Code’s adoption of IFRS 15 Revenue from Contracts with Customers (note this new appendix will apply to the 2018/19 financial statements).

The 2017/18 Code consultation also includes two standards that will apply from 1 April 2018, ie in the 2018/19 Code: IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. Both of these standards will require judgements by accounts preparers. They are likely to require new information and new systems or changes to existing systems. CIPFA/LASAAC is 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. It will not permit early adoption of these standards.

IFRS 9 Financial Instruments

IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. It 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.

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.  CIPFA/LASAAC is keen to understand the practical consequences of the changes to local authorities. 

IFRS 15 Revenue from Contracts with Customers

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 would 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. Again CIPFA/LASAAC is interested in receiving feedback from interested parties on this issue.


The ITC and exposure drafts of the 2017/18 code

The Exposure Draft of the 2017/18 Code is provided as a number of files. They are listed in numerical order and follow the order of the section in the ITC in which an issue is discussed, not the section of the Code itself, as a number of issues affect more than one section of the Code.

Invitation to comment

Invitation to Comment (ITC) on the 2017/18 Code

Exposure drafts

ED 1 – Narrative Reporting

ED 2 – Going Concern Reporting

ED 3 – Review of Accounting Policies

ED 4 – Restructure of Chapter One

ED 5 – IAS 7 Statement of Cash Flows Amendments

ED 6 – HRA Accounting Practices Directions 2016

ED 7 – The Local Authority (Capital Finance and Accounting) Scotland Regulations 2016

ED 8 – IFRS 9 Financial Instruments – Appendix F

ED 9 – IFRS 15 Revenue from Contracts with Customers – Appendix G

The Invitation to Comment summarises the proposed changes to the Code. 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 2017/18 Code. In order to assess comments properly, respondents are asked to support comments with clear accounting and financial reporting reasons and, where applicable, preferred alternatives. Respondents are asked to use this response sheet to respond to the consultation and so speed up the analysis.