Rebuilding trust through local government financial statements


by Don Peebles, CIPFA head of policy and technical

Against a background of grant reduction and austerity, the current focus in local government continues to be on the ability to set a balanced budget, together with an ongoing debate on commercialism. However, there are other debates which may have fallen by the wayside which also deserve our attention. One forward-looking challenge is to consider what the role is for financial statements, and whether now is the right time to critically appraise local authority financial reports.

Reporting on the results of local authority performance has always been a core area of strength for public finance professionals adhering to accepted international financial reporting standards. 

It is widely recognised that the long-term sustainability of local authorities and the effective use of the public pound can only be realised with world-class financial management systems which can help manage the many potential risks arising in the challenging and changing fiscal landscape of the UK.

One of the characteristics of reporting under the aegis of international standards has been the substantial increase in the amount of information reported. While the level of detail and depth of information provided is in many respects impressive, nearly ten years after implementation finance professionals need to challenge themselves about where there is room for improvement. In the age of social media, where information is expected to be immediately accessible, there is no room for complacency. That is also why CIPFA’s local authority accounting panel—along with the Society of London Treasurers, the Society of District Council Treasurers, and Grant Thornton LLP—is critically examining how local authority financial information is reported.  

There is a reality that, for the layperson, financial statements can be difficult to navigate and for some can be even impenetrable. Local authority statements are no different, except to say this: local authority accounts have a wider user group, from politicians to citizens to lenders. As leaders of public finance, we are keenly aware of the need to strike a balance between compliance with high professional standards, and clear, intelligible, and, where necessary, streamlined information which focuses on the items that a wide user group will require. 

We believe there are opportunities within the current framework to re-position what we do while continuing to adhere to the required international standards. Our early work tells us that ‘streamlining’ is important for many reasons, having been shown not only to save resources and allow our financial experts in local government to devote more time and energy towards value adding activity, and it can also help better inform public debate on local government’s finances.

Recently we released a pre-publication version of Streamlining the Accounts: Guidance for Local Authorities, which focuses upon supporting local authorities to prepare clearer and shorter financial statements to a high standard. The guidance indicates a process which will result in code-compliant accounts, but which will take less time and resources. This was a collaborative piece which aims to help local authorities learn about some additional support steps to streamline both the format of their published financial statements and the year-end processes that underpin them.

With the current reporting period for local government coming to a close, for finance practitioners it is worth reviewing the practical approach contained in this document, which includes a combination of general guidance, case studies and worked examples. These helpful examples are designed to illustrate how presentation might be tailored to reflect local context. Of course, they should not be treated as either accounting templates or as definitive interpretations of Code requirements. However, local government accountants will find them a welcome addition to CIPFA’s suite of closedown support.

The importance of these issues should not be underestimated. When we improve local government financial reporting, we help to rebuild the trust which is essential to the success of our public 
services. While current reporting practices are of high quality, we believe more work can be done to better translate the financial stories of individual local authorities. If local government can strike the right balance in fiscal reporting, not only will this be of significant help to the finance teams currently busy at work preparing their annual reports, but, through greater transparency, such work will also help better support local democracy itself. This is an important first step on a vital journey.

This article first appeared in Local Government Chronicle.

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