After being contacted by a group of audit firms in April 2018 who expressed increasing concern on the accounting by councils of LOBO (lender option borrower option) loans, CIPFA/LASAAC has released a statement drawing attention to the sections in the Accounting Code of Practice that address the accounting for LOBOs.
In the statement, CIPFA/LASAAC refers to the underlying financial reporting standards adopted by the Code (ie IAS 3 in the 2017/18 Code and IFRS9 in the 2018/19 Code), which provide the relevant accounting provisions and are able to reflect local government circumstances.
While adding no additional guidance to the Code, CIPFA/LASAAC hopes the clarification statement will help draw local authorities to the relevant sections of the Code and to the underlying standards for support in accounting for LOBOs.
While the types of debt products that are available to councils have been changed over time, the principles within both professional code and legislation have remained, which is that councils can only ever borrow in the medium to long term for capital investment purposes.
Councils should constantly monitor their debt portfolios to ensure it meets their requirement to fund capital expenditure.
Don Peebles, Head of CIPFA’s Policy and Technical, said: “Not all local authorities will have these type of loan, however – LOBO’s are complex financial instruments and my advice to local authorities is to ensure that they have reviewed all LOBOs and are satisfied with the accounting treatment. Consult your appointed auditor. Seek specialist advice from your appointed treasury adviser. And, finally, ensure that you maintain contact with CIPFA’s Finance Advisory Network, who will be issuing a briefing note as soon as possible.”
Read the CIPFA/LASAAC clarification statement
CIPFA, the Chartered Institute of Public Finance and Accountancy, is the professional body for people in public finance. CIPFA shows the way in public finance globally, standing up for sound public financial management and good governance around the world as the leading commentator on managing and accounting for public money.