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

22-05-2018

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

IFRS 16 removes the previous lease classifications of operating and finance leases for lessees and it requires that a right-of-use asset be recognised for all leases (there are exemptions for short-term and low value leases) with a corresponding lease liability representing the lessee's obligation to make lease payments for the asset. 

For lessors the finance and operating lease classifications have been retained and the provisions in the standard for lessors are substantially unchanged, although there are some changes in relation to sale and lease back transactions and the accounting for the structure of sub-leases. 

The ITC and Exposure Draft include CIPFA/LASAAC’s proposals for adoption of the new standard but the Board is seeking views on a number of issues including the approach to the subsequent measurement of the right-of-use asset, the approach to transition and concessionary leases (for lessees).  

Readiness assessment questionnaire

As it is aware that IFRS16 will have practical as well as technical considerations, CIPFA/LASAAC would appreciate feedback and information on the practical implications that implementation of the proposals has for local government bodies so that it can evaluate the impact of the standard on local authorities. Consequently the consultation and the response sheet provided include a ‘readiness assessment questionnaire’. 

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.

Note correction: the end section of paragraph 162 in the Invitation to Comment should read:

‘CIPFA/LASAAC proposes mandating the first and fifth of these expedients as it considers that most local authorities will take-up these practical expedients and they are consistent with the approach to short-term leases. The FReM proposals are also to mandate the first, and fifth of these practical expedients and the use of hindsight. However, CIPFA/LASAAC is of the view that local authorities are best placed to determine whether hindsight should be used.’

Note also that to support the implementation of the Standard for local authorities CIPFA is issuing regular Briefings on adoption.  These Briefings may be found at Local Authority Leasing Briefings.