Code of Practice on Local Authority Accounting in the United Kingdom 2016/17

Here are the main changes made to the new edition of the Code of Practice on Local Authority Accounting in the United Kingdom 2016/17

This is the seventh edition of the Code to be prepared under International Financial Reporting Standards (IFRS), which have been adopted as the basis for public sector accounting in the UK. The 2016/17 Code has been developed by CIPFA/LASAAC and has effect for financial years commencing on or after 1 April 2016.

Local authorities in the United Kingdom are required to keep their accounts in accordance with ‘proper (accounting) 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).

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

This 2016/17 edition of the Code introduces new, or amended, accounting standards or reporting requirements in a number of areas, in particular:

  • The introduction of a new section specifying the revised measurement requirements at Depreciated Replacement Cost for the Highways Network Asset based on the methodologies in the CIPFA Code of Practice on Transport Infrastructure Assets (this is to be renamed as the Code of Practice on the Highways Network Asset). This section includes the specific accounting policies for the initial recognition, measurement, derecognition and disclosure requirements for the Highways Network Asset. Consequential amendments are also required throughout the Code but principally to the section on Property, Plant and Equipment (PPE).
  • The Code also includes changes resulting from the Telling the Story review on improving the presentation of local authority financial statements. These include new formats and reporting requirements for the Comprehensive Income and Expenditure Statement and the Movement in Reserves Statement and the introduction of the new Expenditure and Funding Analysis.
  • Amendments to the Accounting and Reporting by Pension Funds section of the Code, following its review by CIPFA/LASAAC including:
    • update to the format of the Fund Account and the Net Asset Statement to be consistent with the new Financial Reports of Pension Schemes – A Statement of Recommended Practice 2015
    • confirmation of the new disclosure requirements for retirement benefit plan investments measured at fair value
    • recommendations for a new disclosure on investment management transaction costs
    • a new Annex setting out the application of other sections of the Code
    • other minor drafting improvements, and
    • new updated references to Scottish Government Circular 6/20
    • Following the changes introduced in the Update to the 2015/16 Code, amendments to reflect the new requirements in the Accounts and Audit Regulations 2015 for English authorities for a narrative statement. The section has also been updated to reflect the provisions of Statutory Guidance issued by the Scottish Government on the Management Commentary and a new recommendation is made to cross refer in the Narrative Report to the new Expenditure and Funding Analysis.
    • An update of the Concepts section of the Code for the issue of the IPSASB Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities, particularly to reflect the description of public sector users and understandability of local authority financial statements.
    • Amendments arising from the narrow scope amendments to International Financial Reporting Standards including changes from the following amended standards:
      • IAS 1 Presentation of Financial Statements under the International Accounting Standards Board Disclosure Initiative
      • IAS 24 Related Party Disclosures in relation to key management personnel as a result of the Annual Improvements to IFRSs 2010 – 2012
      • IFRS 11 Joint Arrangements Accounting for Acquisitions of interest in Joint Operations
      • IFRS 8 Operating Segments as a result of the Annual Improvements to IFRSs 2010 – 2012.
      • An update to the Statements Reporting Reviews of Internal Controls Section of the Code for the changes to the Delivering Good Governance in Local Government: Framework (2016) published by CIPFA and SOLACE.

      The Code includes confirmation (following confirmation in the Update to the 2015/16 Code) of changes as a result of the Accounts and Audit Regulations 2015 for English authorities and the Local Government (Accounts and Audit) Regulations (Northern Ireland) and minor amendments to reflect the introduction of Scottish Government Statutory Guidance on Accounting for Equal Pay and Severance.The Code also includes confirmation that the option to equity account for investments in subsidiaries, associates or joint ventures in the local authority single entity financial statements is not included in the Code under IAS 27 Separate Financial Statements (Equity Method in Separate Financial Statements); issued September 2014.

      The 2016/17 Code sees the introduction of a new Appendix D listing the amendments to standards included in the 2016/17 Code.

      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.

      In England and Wales, Code constitutes proper (accounting) practice under the terms of section 21(2) of the Local Government Act 2003. In Scotland, the Code constitutes proper accounting practice under section 12 of the Local Government in Scotland Act 2003. In Northern Ireland, the status and authority of the Code derives from regulation (2) the Local Government (Capital Finance and Accounting) Regulations (Northern Ireland) 2011 of the Local Government (Accounts and Audit) Regulations (Northern Ireland) 2006 and through the relevant accounts direction issued by the Department of the Environment (Northern Ireland).