2023/24 Accounts Closedown summary

Feedback from the event surveys so far has been positive and we hope that practitioners found the events helpful and practical in covering the issues impacting on the 2023/24 accounts closedown process, as well as to help prioritise actions for the implementation of IFRS 16. On that topic, FAN is only aware of two local government bodies adopting the standard ahead of the mandatory date, so well done to Crawley Borough Council and the City of Edinburgh Council for making the decision to adopt in 2022/23.

As with previous FAN events, we used Slido to seek feedback and facilitate interaction, including at the two in-person events. A flavour of the feedback has been included here for information. Many thanks to the delegates who took part in the various Slido sessions we ran, which provided valuable insight on a number of key areas impacting on practitioners, both in relation to accounts closedown and local audit, but also on readiness for IFRS 16 implementation.

Practical and technical issues impacting the 2022/23 closedown

The first session of the workshops provided the opportunity to network and share feedback on practical or technical issues that impacted on the 2022/23 Closedown. There were no real surprises in the top areas of discussion, the top six being:

1. Local audit delays, with many audits incomplete and a general lack of progress
2. Asset valuations and increased audit evidence for the reliance on experts
3. Pensions assets (IFRIC 14) and impact of audit delays on triennial valuation data
4. Audit inexperience, with many audit staff unfamiliar with UK public sector accounting and a general concern over low quality audit work
5. Audit testing increased generally, with more samples, and many (often repeated) questions,
6. Lack of audit plans with no apparent sense of urgency, very little engagement and a lack of interim work

Interestingly, feedback from the Scotland/Wales events were also heavily skewed towards audit issues, with audit sign-off delays and change of auditors coming top alongside asset valuations/pensions assets.

2022/23 Audits (England only)

For the English only events (including English Police) only 23% of those responding said their 2022/23 accounts had been audited, and 86% said their 2022/23 unaudited accounts had been published. There was mixed confidence on the ability to publish 2023/24 unaudited accounts by 31 May statutory date in England, and although one third of delegates scored their confidence as 9 or 10, a third scored themselves as 5 or below out of 10. The top four factors impacting on lower confidence levels were:

1. Staff capacity pressures, including high turnover and related loss of expertise, difficulties in recruitment, along with staff welfare concerns generally (high stress/sickness, low motivation, etc)
2. Audit backlog impact, with audit timetables clashing with the key stages for closedown, along with general uncertainty over opening balances, etc
3. Asset valuations
4. Pensions accounting (including pension fund surplus/assets)

IFRS 16 preparations and readiness

On IFRS 16 preparations and readiness, over 60% of authorities had not factored IFRS 16 into their 2024/25 Prudential Indicators, with only a quarter attempting to calculate the impact of leases coming on balance sheet at 1 April 2024. Confidence on awareness of existing arrangements that might meet the Code’s definition of a lease was mixed, with a quarter of authorities scoring themselves 4 or below, and only 11% scoring confidence levels at 9 or 10. Police bodies had the highest level of confidence on lease awareness, although this might be due to their generally smaller size and usually having fewer leases to address.

Over 60% had not agreed any changes to their accounting policies for IFRS 16, with only 6% of respondents having agreed revised policies. Just under 60% were confident or somewhat confident that their systems were able to handle the data required to support IFRS 16 lease accounting, although around 15% of responders were not confident or didn't think their systems were adequate.

Almost three quarters had not discussed IFRS 16 preparations with auditors, although feedback indicated that in England some auditors were not ready for those discussions anyway. In terms of overall confidence on readiness, around 65% said they were confident or somewhat confident of being ready for 2024/25 although those optimism levels seemed at odds with general comments that progress was not as advanced as they would have liked.

When asked to highlight the barriers that have hindered preparations the feedback was largely as anticipated based on earlier comments in the day, the top four reasons being:

1. Insufficient finance team capacity
2. Difficulty in obtaining/locating lease documentation
3. Lack of corporate buy in for prioritising the work
4. Insufficient capacity elsewhere in the authority to support collation and interpretation of lease data

Actions to take away

Finally, the main action points that were identified as part of the discussions were:

1. Review and agree accounting policies (low value asset threshold, incremental borrowing rate, MRP, application of materiality, etc)
2. Review and assess adequacy of existing lease records, and ensure data collection across the organisation is progressing well
3. Liaise with auditors to discuss progress and their expectations on evidence requirements
4. Engage with property, procurement and other services to establish awareness and nature of leases that already exist
5. Review the project plan and check progress is on track
6. Review systems for adequacy under Business as Usual, and consider options for future improvements (for example arranging a demo of the CIPFA software solution).