Code of Practice on Local Authority Accounting in the United Kingdom: Consultation on IFRS 16 Leases


Code of Practice on Local Authority Accounting in the United Kingdom: Consultation on IFRS 16 Leases

Please note this consultation will close on 7 September 2018

This Invitation to Comment (ITC) sets out CIPFA/LASAAC’s proposals for developing the new edition of the Code (the 2019/20 Code) to apply to accounting periods commencing on or after 1 April 2019 for IFRS 16 Leases as a single issue consultation.

Issues considered in the consultation

The changes to lease accounting under IFRS 16 Leases are significant. In brief:

  • For lessees the operating and finance lease classification model is replaced by a ‘right-of-use asset’ model. This is anticipated to result in a potentially significant increase in the number of leased in assets that are recognised on the balance sheet, as well as the liabilities associated with those assets.
  • The operating and finance lease classification model is however retained for lessors, meaning that the lessor and lessee models are asymmetrical. 
The consultation considers and welcomes feedback on the implementation proposals, including:

  • recognition exemptions
  • identifying a lease
  • initial recognition and measurement
  • subsequent measurement
  • concessionary leases (lessees only)
  • lessor accounting
  • sale and leaseback transactions
  • consequential amendments – Service Concession Arrangements (PFI/PPP)
  • effective date
  • further guidance.

Readiness assessment questionnaire

CIPFA/LASAAC would also appreciate feedback and information on the practical implications that implementation of the proposals has for local government bodies. Consequently the consultation and the response sheet provided include a ‘readiness assessment questionnaire’. This seeks information from organisations, including:

  • ability to identify lease contracts
    • finance leases
    • operating leases
  • leases with other public sector bodies
    • finance leases
    • operating leases
  • rent reviews
  • contracts that may contain leases (embedded leases)
  • information held on operating leases
  • necessary systems and processes
  • impact on procurement, capital strategies and Prudential Code indicators
  • whether the organisation considers that it will be able to implement the proposals for the 2019/20 financial year

The consultation documents

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 proposals. 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 and readiness assessment questionnaire to respond to the consultation and so speed up the analysis.