LASAAC has provided guidance on IFRS 9 Financial Instruments – earmarking of gains not available to fund services. This specifies that balances in the general fund (or HRA balance) relating to unrealised, or volatile, gains from financial instruments classified as ‘fair value through profit or loss’ should be earmarked and not regarded as available to fund services.
Key elements of the guidance include:
- specification that the guidance is mandatory and is ‘proper accounting practice’
- requirement to earmark an element of the general fund balance as being ‘not available to fund services’
- specification that a net cumulative overall unrealised loss will affect the general fund balance that is available to fund services
- specification of how to calculate the ‘not available to fund services’ earmarked balance, including reference to:
- financial asset gains being ‘readily convertible to cash’
- the criteria specified for this purpose
- reference to commercial sector determination of ‘readily convertible to cash’ (Appendix 1)
- inclusion of ‘volatile’ financial asset fair value gains in the earmarked balance (even where such assets are ‘readily convertible to cash’) based on an assessment of the prudence of relying on such gains to fund services
- illustrative example of determination of the amount to be earmarked (Appendix 3)
- disclosure requirements in the annual accounts
- general fund balance to be a single figure on the balance sheet and similarly presented in the movement in reserves statement (MiRS)
- disclosure of the specified amount as an ‘earmarked balance’ following the Code requirements
- disclosures relating to fair value gains and losses held in the financial instruments revaluation reserve (eg financial instruments held at fair value through other comprehensive income and expenditure), particularly where there is a debit balance
- application of materiality
- illustrative disclosure (Appendix 2)
- application of the above to Housing Revenue Account balances.
LASAAC is grateful for the participation of, and contributions from, all stakeholders involved in the development of the guidance.
Feedback on the experience of applying this guidance in 2018/19 would be welcome, and should be emailed to firstname.lastname@example.org.