code 2013/14 itc

the code of practice on local authority accounting in the united kingdom

2012/13 code update and 2013/14

code

invitation to comment

2

invitation to comment

Introduction

1. Local authorities in the United Kingdom are required to keep their accounts in

accordance with ‘proper practices’. This is defined, for the purposes of local

government legislation, as meaning compliance with the terms of the Code of

Practice on Local Authority Accounting in the United Kingdom (the Code),

prepared by the CIPFA/LASAAC Local Authority Accounting Code Board

(CIPFA/LASAAC). The Code is reviewed continuously and is issued annually.

2. Under the oversight of the Financial Reporting Advisory Board, the CIPFA/LASAAC

Code Board is in a position to issue mid-year updates to the Code. There have

been a number of significant developments to statutory accounting or disclosure

requirements which could not be included in the 2012/13 Code due to the timing

of issue. CIPFA/LASAAC would stress that this mid-year update has been issued

to assist practitioners with the accounting requirements of legislative and other

policy initiatives that have emerged following approval for publication of the

2012/13 Code rather than to introduce any new accounting changes. As with the

2012/13 Code, the 2012/13 Code Update is applicable for the 2012/13 financial

year and is based on accounting standards in effect on 1 January 2012 or earlier.

3. The edition of the Code that is applicable for a financial year is based on

accounting standards in effect on 1 January prior to the start of the financial year.

For the 2013/14 Code which is also the subject of this consultation, this means

that EU adopted accounting standards with an effective date of 1 January 2013 or

earlier will need to be taken into account. Section B of this Invitation to

Comment (ITC) includes the items that will feature in the 2013/14 Code.

4. Interested parties may be aware that following the first full year of IFRS adoption

CIPFA/LASAAC sought views on the implementation of the Code in last year’s ITC.

Its post-implementation review was initiated in April this year. Other views were

sought via an article in Public Finance and a Workshop at the CIPFA Conference in

July. Whilst initial conclusions are that overall implementation was successful the

review has identified a number of areas where the Code can be augmented or

enhanced. These enhancements, the interim outcomes of the review are included

in Section B of this ITC, if interested parties have any additional issues or other

feedback they would like to make on the implementation of the IFRS-based Code

they are invited to provide these with their responses to this ITC.

5. This ITC sets out CIPFA/LASAAC’s proposals for developing the current (2012/13)

Code with the resulting amendments to be included in either the 2012/13 Code

Update (and in the 2013/14 Code) to apply to accounting periods commencing on

or after 1 April 2012 (Section A of this ITC), or the new edition of the Code (the

2013/14 Code) to apply to accounting periods commencing on or after 1 April

2013 (Section B of this ITC). The proposed developments are:

Section A – 2012/13 Code Update and 2013/14 Code –

Statutory Accounting and Disclosure Requirements

(a) Housing Revenue Account Reform in England– the New Self - Financing

Regime

(b) Accounting for Carbon Reduction Commitment (CRC) Energy Efficiency

Scheme Assets

(c) Changes to the Code to Reflect the New Prudential System for Capital

Finance in Northern Ireland

3

(d) Minor amendments

Section B – 2013/14 Code Only

(e) Accounting for Employee Benefits - the June 2011 Amendments to IAS 19

(f) The Comprehensive Income and Expenditure Statement – June 2011

Amendments to IAS 1 Presentation of Financial Statements and

Consequential Changes arising from the June 2011 Amendments to IAS 19

(g) IFRS 13 Fair Value Measurement

(h) Augmenting the Code’s Provisions on Service Concession Arrangements

(i) Accounting for Financial Instruments – IFRS 7 Financial Instruments:

Disclosures (December 2011 Amendments)

(j) Interim Outcomes of the Post-Implementation Review

(l) Accounting for Schools in Local Government

(m) The End of the Local Authority Landfill Allowance Trading Scheme in

England

(n) Structural Change to Police and Fire Authorities in Scotland, and

(o) Other minor amendments to accounting standards and legislative changes.

The Consultation Process

6. 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 draft 2012/13 Code Update or the 2013/14 Code. In order to

assess comments properly CIPFA/LASAAC would prefer respondents to support

comments with clear accounting reasons and, where applicable, preferred

alternatives.

7. Responses to this Invitation to Comment will be regarded as on the public record

unless confidentiality is specifically requested and are required to be published on

the CIPFA Website. If you require your response to be treated as confidential

please indicate this clearly on the response itself. Copies of all correspondence

and an analysis of responses will be provided to the Financial Reporting Advisory

Board.

8. A copy of the Exposure for the Drafts of the 2012/13 Code Update and the

2013/14 Code in pdf format can be down-loaded from the CIPFA website

http://www.cipfa.org.uk/pt/consultations.cfm

9. To assist authorities to respond to the consultation, a response form (in Word

format) is attached. We would be grateful if authorities could use this form to

respond to the consultation as this will speed up the analysis.

10. Responses are required by 1 October 2012 and may be sent to:

The Secretary

CIPFA/LASAAC Local Authority Code Board

Policy and Technical Directorate

CIPFA

3 Robert Street

London

WC2N 6RL

Fax: 020 7543 5695

4

E-mail: code.responses@cipfa.org

(For ease of handling, e-mailed responses using the Word document form

provided are preferred.)

5

SECTION A – DEVELOPMENT ITEMS WHICH WILL BE INCLUDED IN A

2012/13 CODE UPDATE (AND 2013/14 CODE)

Statutory Accounting and Disclosure Requirements

Introduction

11. As noted in the Introduction to this Invitation to Comment (ITC), CIPFA/LASAAC

is able to issue mid-year updates to the Code. However, CIPFA/LASAAC will

restrict any amendment in those updates to only those necessary to ensure that

the Code is able to reflect the relevant statutory reporting requirements in order

to assist practitioners in their understanding of the Code’s requirements.

Housing Revenue Account Reform (England) – The New Self Financing Regime

12. The Invitation to Comment on the 2012/13 Code noted the introduction in

England of the self-financing regime for the Housing Revenue Account (HRA).

However, the statutory arrangements for the regime had not been confirmed at

the time the Code was authorised for publication. The Localism Act 2011 has now

been enacted and the suite of determinations required to implement the regime

are in place.

13. The Item 8 Credit and Item 8 Debit (General) Determination from April 2012 has

been drafted with an intention that after a five year transitional period HRA

capital financing for dwellings will be based on depreciation charges. However,

during the transitional period the expected accounting impact on the HRA is not

substantially changed from that which applied before 2012/13.

14. The CIPFA/LASAAC Board’s analysis of the statutory changes is that the 2012/13

Code needs to be updated in two main areas:

Removal of references in Section 3.5 to England in relation to HRA Subsidy

and the Major Repairs Allowance

Amendment to the capital accounting requirements in Section 4.1.3

consequent on the changes made in the Determination

15. The proposed updates to the 2012/13 Code have therefore been restricted to the

following:

In paragraph 3.5.3.1, the deletion of references to England in the items in the

HRA Income and Expenditure Statement for negative HRA Subsidy payable

(d) and HRA Subsidy receivable (m)

In paragraph 4.1.3.6, the description of the accounting entries required to

manage the “bottom line” of the HRA and the Major Repairs Reserve has been

amended so that it is consistent with the Determination. Reference to the

scenario where a credit is made to the HRA where depreciation is less than

the MRA has been deleted (but see also last bullet).

The Code has also been updated for a transfer included in the Determination

where decent homes backlog funding has been credited to the Housing

Revenue Account in accordance with a direction made by the Secretary of

State under item 9 of Part I of Schedule 4 to the 1989 Act. This transaction

6

has been added to ensure that the transfers to the Major Repairs Reserve

accord with the Determinations.

The Code has also been amended to recognise that the Determination also

permits authorities to transfer an amount in excess of depreciation.

16. Paragraph 3.5.5.1(6) that requires authorities to provide a breakdown of the HRA

Subsidy payable to an authority has not been deleted as the disclosures in that

paragraph are based on statutory requirements in the Housing Revenue Account

(Accounting Practices) Directions 2011 that were extant when this ITC was being

prepared.

Housing Revenue Account Reform (England) – The New Self Financing Regime

Q1 Do you agree that the amendments to the presentational

requirements of the Code required for HRA self-financing in England

are limited to deletion of references to England in the HRA Income

and Expenditure Statement line items for negative HRA Subsidy

payable and HRA Subsidy receivable? If not, why not? What

alternatives do you suggest?

Q2 Do you agree that the amendments to paragraph 4.1.3.6 reflect

effectively the process required to manage the impact of depreciation

on the HRA balance and the maintenance of the Major Repairs

Reserve under the Item 8 Credit and Item 8 Debit (General)

Determination from April 2012 and the Accounts and Audit (England)

Regulations 2011? If not, why not? What alternatives do you

suggest?

Q3 Do you agree that the amendments to paragraph 4.1.3.6 reflect the

changes to the statutory accounting requirements for the Major

Repairs Reserve introduced by the Determination? If not, why not?

What alternatives do you suggest?

Accounting for Carbon Reduction Commitment (CRC) Energy

Efficiency Scheme Assets

17. Accounting provisions for the Carbon Reduction Commitment (CRC) Energy

Efficiency Scheme have not previously been included in the Code, although the

scheme became operational in 2011/12. CIPFA/LASAAC has determined that

Section 2.4 of the Code should be expanded to follow the requirements in relation

to CRC based on IFRIC 3 Emission Rights, although the IFRIC was withdrawn in

2005.

18. For 2012/13, the CRC Energy Efficiency Scheme is still in its introductory phase,

where sales of allowances are prospective, but it appears that the opportunity

might exist for authorities to purchase allowances prospectively. Following the

decisions made by IFRIC 3, the proposed amendments to the 2012/13 Code set

out in paragraphs 2.4.2.10 to 2.4.2.13 are therefore:

to recognise an asset for any allowances held

to recognise a liability for the surrender of allowances to the CRC Registry

allowances are held on the Balance Sheet as:

7

- intangible assets (analysed into current and non-current amounts as

appropriate) accounted for in accordance with Section 4.5 of the Code

– this is because assets meet the definition of ”identifiable non-

monetary assets without physical substance”; or

- if held for the purposes of trading, current assets

where allowances are issued for less than their fair value, they should be

measured on recognition at fair value, with the excess over purchase price

being recognised as income

where there is evidence of an active market, allowances should be revalued in

accordance with Section 4.5 of the Code; otherwise they should be measured

at cost.

19. There are no specific disclosure requirements added in relation to the CRC Energy

Efficiency Scheme.

Accounting for Carbon Reduction Commitment (CRC) Energy Efficiency Scheme

Assets

Q4 Do you agree that it is appropriate to base the proposed accounting

provisions for the CRC scheme in Section 2.4 on the decisions made

in IFRIC 3 Emissions Rights (withdrawn 2005) – ie, to recognise an

asset for allowances held and a liability for the surrender of

allowances? If not, why not? What alternatives do you suggest?

Q5 Do you agree that allowances should be carried as intangible assets

(analysed into current and non-current amounts) in accordance with

Section 4.5 of the Code or, if held for trading, as current assets in

accordance with Chapter Five of the Code? If not, why not? What

alternatives do you suggest?

Q6 Do you agree that it is appropriate to measure allowances at fair

value? If not, why not? What alternatives do you suggest?

Changes to the Code to Reflect the New Prudential System for

Capital Finance in Northern Ireland

20. The new prudential system for capital finance in Northern Ireland was introduced

on 1 April 2012. However, the secondary legislation required to give the system

effect was introduced too late in the development process of the Code to allow

full introduction of those changes to the Code. The main substantial amendments

proposed in the 2012/13 Code Update are:

the recommended wording for the Statement of Responsibilities in paragraph

3.2.4.1 has been amended to make reference to the Local Government

Finance Act (Northern Ireland) 2011 and the duties this places on councils to

make arrangements for the proper administration of their financial affairs;

the Statutory Accounting Requirements paragraphs of Sections 4.1 to 4.6

have been updated to include Northern Ireland in the references to the need

to charge Minimum Revenue Provision (rather than loans fund charges) to the

General Fund; and

8

Appendix B Sources and Legislation has been fully revised to reflect the new

statutory provisions that affect the preparation of the capital financing entries

in the financial statements in Northern Ireland.

Changes to the Code to Reflect the New Prudential System for Capital Finance in

Northern Ireland

Q7 Do you agree that the amendments to the Code are sufficient to

reflect the impact on the financial statements of the implementation

of the new prudential system in Northern Ireland? If not, why not?

What alternatives do you suggest?

Minor Changes for the 2012/13 Code Update

Non-Domestic Rate Income: Potential for the Authority to Act as Principal

(England and Scotland)

21. The possibility of anticipated use of Tax Increment Financing (TIF) in England is

discussed in more detail in Section B of this ITC at paragraphs 122-125. In

addition, the Scottish Government has stated it is supportive of proceeding with

TIF pilots1.

22. CIPFA/LASAAC considers that at this current point in time that there is insufficient

detail to include specific provisions for TIF in the Code. However, it has included

a general provision to enable authorities to develop appropriate accounting

treatment if the timetables do not permit specific provisions to be included in the

Code at paragraph 2.8.2.2.

23. The Scottish Government has also introduced the Business Rate Incentivisation

Scheme from 1 April 2012, which allows authorities to retain a portion of any NDR

income in excess of a target collection performance. In relation to the Business

Rate Incentivisation Scheme it is considered that authorities should determine

whether an element of any Non Domestic Rate income has been collected on a

‘principal’ basis and if this is the case, the authority would need to account for it

under Section 2.6 of the Code Principal and Agent Transactions.

Non-Domestic Rate Income: Potential for the Authority to Act as Principal

(England and Scotland)

Q8 Do you agree with the proposed amendment at paragraph 2.8.2.2 of

the Code? If not, why not? What alternatives would you suggest?

The Local Authorities (Capital Finance and Accounting)(England)

(Amendment) Regulations 2012 (SI 2012 No. 265) (as amended) 24. The abovementioned Regulations were made in February 2012. The main effect

of the changes is to bring securitisation within the capital finance framework,

relax the rules on bond investments, and clarify the definition of capital

expenditure. Although these amendments extend the statutory definition of

capital expenditure the CIPFA/LASAAC Code Board does not consider that it needs

1 See: http://www.scotland.gov.uk/Topics/Government/Finance/18232/TIF

9

to make specific reference to this set of Regulations as these amendments are

picked up in the general provisions of the Code in relation to the statutory

accounting requirements.

Other minor changes for the 2012/13 Code Update

25. There are also two minor amendments and corrections which do not significantly

change the Code in any substantial way at paragraphs 2.3.2.11 and 6.5.6.7 (note

that this latter minor amendment will be for the 2012/13 Code Update only, in

accordance with paragraph 112 of Section B of the ITC). These are itemised in

the Exposure Draft – Minor Amendments 2012/13 Code Update.

Other minor changes for the 2012/13 Code Update

Q9 Do you agree with the minor amendments and corrections listed in

the Exposure Draft? If not, why not? What alternatives do you

suggest?

10

SECTION B – DEVELOPMENT ITEMS WHICH WILL BE INCLUDED IN THE 2013/14

CODE ONLY

IAS 19 Employee Benefits (June 2011 Amendments)

26. The International Accounting Standards Board (IASB) issued amendments to IAS

19 Employment Benefits in June 2011. The amendments to the Standard have

been adopted by the EU2 and therefore will, subject to full due process, be

adopted in the Code. The most substantial amendments to the Standard included

in this consultation are related to post-employment benefits, but have an impact

on each of the first four sections of Chapter Six of the Code:

6.1 Introduction and definitions

6.2 Benefits payable during employment

6.3 Termination benefits

6.4 Post-employment benefits

27. The amendments proposed in the 2013/14 Code and described in the following

paragraphs are limited to those that CIPFA/LASAAC has deemed are necessary as

a result of the amendments to IAS 19.

Introduction and definitions

28. The definitions in IAS 19 have been restructured so that they are no longer in

simple alphabetical order. Instead they are presented in four functional sections.

Section 6.1 of the Code has been revised to reflect the same structure.

29. Within these revisions, some changes have been made to particular definitions,

new definitions have been added and redundant terms have been removed.

CIPFA/LASAAC has not identified any consequences for the preparation of the

statement of accounts arising from the revisions to the definitions, apart from

those detailed in the succeeding paragraphs of this ITC.

30. One of the definitions in the proposed amendments in paragraph 6.1.2.1 “assets

held by a long-term employee benefit fund” has been adapted to include Local

Government Pension Scheme circumstances and has introduced an additional

criterion to the definition ie that “… the assets are held for a fund that is legally

separate within the reporting authority…” Interested parties’ views are sought on

the need to include this minor adaptation to the definition to ensure that this

definition adequately describes the assets held by local authority funds.

Benefits payable during employment3

31. The amendments to this section are largely restricted to those required by the

modifications to the terminology in the revised definitions. The accounting

requirements in the 2012/13 Code have been retained.

2 COMMISSION REGULATION (EU) No 475/2012

3 Note that paragraph 6.2.5.2 of the ED currently includes references to Police and Fire Boards – it

is anticipated that these references will be removed in accordance with paragraph 112 of this ITC.

11

32. It should be noted that IAS 19 now uses the term “paid” absences, rather than

“compensated” absences. However, CIPFA/LASAAC is of the view that references

to paid absences has the same meaning in accounting terms as compensated

absences. This clarification has been made in the proposed amendments to the

Code.

33. Section 6.2.3 on other long-term employee benefits has been heavily revised, but

wholly as a result of the changes to accounting requirements for the

reclassifications set out in greater detail in Section 6.4 Post-Employment Benefits.

The basic accounting principles are retained from the 2012/13 Code.

34. Paragraph 6.2.4.1 has been amended to make specific mention of the

requirements of other sections of the Code in relation to the disclosure of

employee benefits – this is in accordance with the approach in IAS 19. The

2012/13 Code made general reference to a need to consider other provisions of

the Code. CIPFA/LASAAC anticipates that authorities will have made such a

disclosure as part of the segment reporting reconciliation to a subjective analysis

of total income and expenditure required by paragraph 3.4.2.90 and might be

required to disclosure material employee benefits under paragraph 3.4.2.51 of

the Code.

Termination benefits

35. Incidental amendments have been made to Section 6.3 to reflect the

modifications to the terminology in the revised definitions, as described in

paragraph 29.

36. The Section has been revised to provide more precisely when a liability and an

expense for termination benefits shall be recognised in accordance with the

amendments to the Standard. In particular, the previous contents of Section

6.3.2 have been withdrawn in their entirety and replaced by revised accounting

requirements. The recognition point is now based on the date when an authority

can no longer withdraw an offer of termination benefits, compared to the previous

test of being demonstrably committed to terminations.

37. Paragraph 6.3.3.1 has been amended to make specific mention of the

requirements of other sections of the Code in relation to the disclosure of

employee benefits – this is in accordance with the approach in IAS 19. The

amendments have taken the same form as the amendments for short and long-

term employee benefits as described in paragraph 34 above.

38. Although substantial change has been made to the Code’s provisions for

termination benefits, CIPFA/LASAAC is of the view that the new requirements

should not make a substantial practical difference to the way in which benefits

are recognised, measured and disclosed compared with the provisions in the

2012/13 Code.

Post-employment benefits

39. The amendments to IAS 19 that relate to post-employment benefits are focused

on:

Reclassification of the components of defined benefits costs: there are now

three major components to defined benefit cost – service cost, net interest

on the net defined benefit liability (asset) and remeasurements of the net

defined benefit liability (asset)

12

Changes in the definitions of some of those components and their sub-

components, and

Changes in the approach to disclosures.

40. The amendments to the Standard also resulted in drafting changes to those

defined benefit schemes that are accounted for as defined contribution plans.

The main change for these schemes is introduced at paragraph 6.4.2.4 ie the new

disclosure requirements for these types of scheme – see also new disclosure

paragraph 6.4.3.42 14). These new requirements comprise more description of

the funding arrangements and the risks and obligations of the authority under

such schemes, with additional requirements relating to the expected contributions

and a comparison of the level of participation that an authority might have in the

plan in comparison with other entities.

41. A substantial implementation issue in relation to the reclassification of

components of defined benefit costs is that service cost is defined by IAS 19 as

comprising current service cost, past service cost and gains/losses on

settlements. However, the Service Reporting Code of Practice (SeRCoP) permits

only current service cost to be included in the total cost of services. Paragraph

6.4.3.27 therefore retains recognition of components at the 2012/13 reporting

level.

42. As noted in paragraph 39 above, a further new classification of remeasurements

has also been introduced by the amendments to the Standard which comprises:

actuarial gains and losses;

the return on plan assets, excluding amounts included in net interest on

the net defined benefit liability (asset); and

any change in the effect of the asset ceiling, excluding amounts included in

net interest on the net defined benefit liability (asset).

CIPFA/LASAAC has not required any further disaggregation of the

remeasurements reclassification into its components as it is not aware of any

significant financial reporting need to do this. This is also discussed as a

reporting issue in relation to the Comprehensive Income and Expenditure

Statement at paragraph 49 below.

43. The amendments to the disclosure requirements of IAS 19 are significant. The

amended standard introduces explicit disclosure objectives and is more of a

principle-based approach. The new disclosure requirements are also more

detailed for many of the disclosures than required previously. CIPFA has met with

representatives of local government actuaries to discuss the impact of the new

disclosures, consider the new requirements and whether the disclosures will

require additional interpretation for local government circumstances (and whether

the information can be produced for the Local Government Pension Schemes).

44. There are a small number of the disclosures where it is clear that difficulties will

arise. The two where most difficulties were envisaged are at proposed disclosure

6.4.3.42 8) and at 13) c). CIPFA/LASAAC is therefore extremely interested in

interested parties’ views on these disclosures (but would welcome commentaries

on any of the new disclosure requirements). In any responses sent, it would be

helpful if interested parties could set out what they consider the difficulties to be

and also give an indication of the costs to the authority of implementing the

disclosure. In addition it would be also useful if interested parties could set out

13

whether any other information is available to help meet the disclosure

requirements in question.

Section 6.5 - Pension Funds – Actuarial present value of promised retirement

benefits

45. There has been some debate recently about the reporting requirements of

“actuarial present value of promised retirement benefits”. IAS 26 gives three

options for the presentation of the actuarial present value of promised retirement

benefits. Paragraph 6.5.2.10 of the Code confirms how these are to be applied by

administering authorities – the three options are included in the Exposure Draft of

proposed amendments to the Code. It is clear from financial reporting

requirements that the best option would be to require a roll-forward of assets and

liabilities in the same manner as IAS 19. However, for some funds with admitted

bodies at a different year end this might be at a significant additional cost.

CIPFA/LASAAC has clarified that it considers that not all of the options are

required to represent the position at the balance sheet date.

IAS 19 Employee Benefits (June 2011 Amendments)

Q10 Do you agree that the revisions to the definitions in section 6.1.2 will

not have practical consequences for the preparation of the statement

of accounts, other than those detailed in paragraphs 28 to 44 of the

ITC? If not, why not? What alternatives do you suggest?

Q11 Do you agree that the adaptation to the definition of assets held by a

long-term employee benefit fund is needed to accommodate local

government pensions scheme circumstances? If not, why not? What

alternatives do you suggest?

Q12 Do you agree with CIPFA/LASAAC’s clarification that in accounting

terms that paid absences means the same as compensated absences

and that this maintains the link with the statutory accounting

requirements? If not, why not? What alternatives do you suggest?

Q13 Do you agree that the amendments to Section 6.2.3 retain the basic

principles for accounting for other long-term benefits apart from

applying the revised analysis of the elements of remeasurements set

out in more detail in Section 6.4 for post-employment benefits? If

not, why not? What alternatives do you suggest?

Q14 Do you consider that paragraphs 6.2.4.1 and 6.3.3.1 effectively

capture the disclosure requirements for employee benefits expenses

in IAS 19 ie that there are other specific requirements in other parts

of the Code where these costs are already reported if material and/or

in the subjective analysis reconciliation in the segmental reporting

disclosure note? If not, why not? What alternatives do you suggest?

Q15 Do you agree that the changes to the Code’s provisions for

termination benefits from a “demonstrably committed” basis for the

recognition of termination benefits to one founded on the ability to

withdraw the offer of benefits will not make a substantial practical

difference to the way in which benefits are recognised, measured and

disclosed? If not, what effects will the changes have? What

alternatives do you suggest?

14

Q16 Do you agree that the reclassification of components (and the

changes in definitions of some of those components) has been

achieved effectively in the proposed amendments to the Code? If,

not why not? What alternatives do you suggest?

Q17 Do you agree that the Code should identify separately as expenses

the three sub-components of defined benefit plan service cost, such

that current service costs can continue to be charged to the total cost

of services?

Q18 Do you agree that the revised disclosure requirements for defined

contribution plans in IAS 19 have been incorporated appropriately in

paragraph 6.4.3.42 14)? Are there any technical or practical barriers

to collecting and presenting the information required by the

disclosures?

Q19 Do you agree that the revised disclosure requirements for defined

benefit plans in IAS 19 have been incorporated appropriately in

paragraph 6.4.3.42? Are there any technical or practical barriers to

collecting and presenting the information required by the disclosures?

It would be helpful to CIPFA/LASAAC if respondents could comment

on the two disclosures identified but the question is open to all of the

disclosures in Section 6.4 of the proposed amendments to the Code.

Q20 Do you agree with CIPFA/LASAAC’s approach to the reporting of

actuarial present value of promised retirement benefits ie that the

options offered by the Code are not required to represent the position

at the balance sheet date? If not why not? Please provide an

explanation with your response.

IAS 1 Presentation of Financial Statements – the Comprehensive Income and Expenditure Statement

Amendments to IAS 1 Presentation of Financial Statements – Other

Comprehensive Income June 2011 Amendments

46. In June 2011 the IASB issued an amendment to IAS 1 Presentation of Financial

Statements. The main change resulting from the amendment was a requirement

for entities to group items presented in Other Comprehensive Income on the

basis of whether they are potentially reclassifiable to profit or loss at a future

date. The amendments to the Standard have been adopted by the EU4. If local

authorities have items of surplus or deficit that are reclassifiable at a future date

an authority would need to include relatively minor structural changes to the

Comprehensive Income and Expenditure Statement (CIES) to accommodate this

change.

47. However, CIPFA/LASAAC is of the view that the items that are likely to be

reclassified for local authorities are only likely to be gains or losses on available

for sale financial assets. The other gains or losses to be reclassified eg cashflow

hedges and exchange differences on translating foreign operations are unlikely to

occur frequently in local authorities. In the light of recent commentaries about

4 See footnote 1

15

the complexities of local authority financial statements CIPFA/LASAAC therefore

considers that it is relevant to challenge the applicability of the IAS 1

amendments to local authority circumstances. It is notable that the

reclassification adjustments that are likely to apply regularly to local authorities ie

gains or losses on available for sale financial assets are expected not to exist

after the anticipated adoption of IFRS 9 Financial Instruments in 2015/16 as this

classification has been removed by the standard.

48. CIPFA/LASAAC’s preferred approach would be to include a requirement in the

Code for authorities to adopt the amendments to IAS 1 where they have items

recognisable in Other Comprehensive Income and Expenditure (OCIE) that are

reclassifiable to the Surplus of Deficit on the Provision of Services but not to

amend the line analysis of the Comprehensive Income and Expenditure

Statement for all authorities. This approach is reflected in the Exposure Draft.

Amendments to the Comprehensive Income and Expenditure Statement as a

Result of the June 2011 Amendments to IAS 19

49. The amendments to the CIES also include proposed consequential amendments

to the Statement as a result of the adoption of the amendments to IAS 19,

reflecting the changes as a result of the new classifications of defined benefit

cost. Interested parties’ views are sought on whether the reporting classifications

identified in the CIES are set at an appropriate level for local government

circumstances.

IAS 1 Presentation of Financial Statements – Other Comprehensive Income

Q21 Do you agree with CIPFA/LASAAC’s preferred approach to the

amendments to IAS 1 ie to include a requirement for authorities to

adopt the amendment to IAS 1 when they report amounts in Other

Comprehensive Income and Expenditure which are reclassifiable to

the Surplus or Deficit on the Provision of Services? If not, why not?

Please provide a rationale in support of the option you prefer.

Q22 Do you agree with the proposed amendments to the line items in the

CIES as a consequence of the adoption of IAS 19 in the Code? If not,

why not? What alternatives do you suggest?

IFRS 13 Fair Value Measurement

50. The IASB issued a fair value measurement standard, IFRS 13, in May 2011. The

new standard defines fair value and sets out in a single IFRS a framework for

measuring fair value. It also requires significant disclosures about fair value

measurements. IFRS 13 does not determine when an asset or a liability is

measured at fair value. The measurement and disclosure requirements of IFRS

13 apply when another IFRS requires or permits the item to be measured at fair

value (with some exceptions). Please note that this standard has yet to be

adopted by the EU and may need to be revised if it is not adopted in time for

inclusion in the 2013/14 Code ie 1 January 2013.

51. However, CIPFA/LASAAC is concerned that this standard will not appropriately

reflect the value of some assets and liabilities (particularly assets) to local

authorities, principally those that are not profit-generating. The definition of fair

value in the standard is based on a market price at an exit value and does not

recognise the potential for an asset to contribute to the provision of services.

CIPFA/LASAAC considers that this is not an appropriate measure of the benefits

16

of these assets to local authorities. The proposed amendments to the Code

therefore include a number of additions to the scope exclusions in the standard at

proposed new paragraph 2.10.2.11 The scope exclusions added are at points d)

to g) ie:

Property, plant and equipment – as CIPFA/LASAAC consider that these assets

are largely not profit-generating assets

Non-current assets within the scope of section 4.3 (ie service concession

arrangements) as there are specific measurement requirements for these

assets on initial recognition

Non-current assets held for sale meeting the definition of right-to-buy assets

in accordance with the current approach in the Code that defines the fair

value of these assets as the discounted right-to-buy value, and

Heritage assets measured in accordance with Section 4.10 of the Code – due

to specific measurement and disclosure requirements of this section of the

Code.

52. CIPFA/LASAAC is of the view that largely the assets in Section 4.1 (and the

majority of assets within the scope of Section 4.3) of the Code are not held by

local authorities for profit generating purposes. However, the Exposure Draft of

the 2013/14 Code includes a rebuttable presumption that this is the case.

Therefore where authorities hold assets within the scope of Sections 4.1 or 4.3 for

profit generation this assumption would need to be rebutted and the

measurement and disclosure provisions of Section 2.10 of the Code would apply.

53. As set out in the Exposure Draft, the scope of the proposed amendments exclude

authorities from both the measurement and disclosure requirements of Section

2.10 in relation to specified asset classifications. CIPFA/LASAAC is of the view

that it is arguable that disclosures about fair value measurement might usefully

be required for all fair value measurements required by other parts of the Code.

However, CIPFA/LASAAC’s preferred approach is to exclude those assets that

have a different definition of fair value from both the disclosure and measurement

requirements of the Code. CIPFA/LASAAC considers that this is the clearer option

for local authorities on the introduction of this standard to the Code. More

importantly, it considers that much of the information required by the standard

should already be included in the financial statements of local authorities ie in

accounting policies and significant judgements in relation to the measurement of

property, plant and equipment. It is therefore seeking the views of interested

parties on whether this is the case, and on its preferred approach.

54. The adoption of the Standard in the Code includes the main provisions of the

Standard without significant interpretation as where the provisions of the Code

apply to local authorities they would apply in the same way as for commercial

entities and therefore very little modification is required. The drafting of this

section of the Code therefore includes the main measurement principles and

assumptions and adopts the principal definitions of the Standard as they are likely

to apply to local authorities. In addition, the Code does include explanation of the

fair value hierarchy as this is referred to in other standards and frequently

referred to in the disclosure requirements of the proposed amendments to the

Code.

55. The proposed amendments to the Code have retained the table at paragraph

2.1.2.30. It has been retained in order to demonstrate the different fair value

measurements applicable to the assets and liabilities of local authorities. The

17

table also refers readers of the Code to the different definitions of fair value and

when authorities will need to refer to the definition, measurements and disclosure

requirements of new Section 2.10 of the Code.

56. IFRS 13 includes extensive disclosure requirements in relation to fair value

measurement and CIPFA/LASAAC is of the view that many of the individual

disclosure requirements of the Standard are not applicable to local authorities.

However, these disclosures have been added to the Exposure Draft of the Code.

CIPFA/LASAAC is, however, seeking views of interested parties whether it might

be more effective to only include those disclosures that are definitely relevant to

local authorities. It is also particularly concerned that the disclosures at

paragraphs 2.10.4.1 6) and 8) might not be directly relevant to local authorities.

57. The Standard also includes significant consequential amendments to the Code:

there are amendments to each of the Sections to which the new definition of fair

value applies. These are itemised in the Exposure Draft. This is with the

exception of the definition of fair value for right-to-buy properties that are held

for sale, which retains its current definition. There are also extensive

amendments to Section 7.4 of the Code in relation to its fair value balance sheet

disclosures at paragraphs 7.4.2.13 to 7.4.2.15 following the requirements of the

Standard.

IFRS 13 Fair Value Measurement

Q23 Do you agree with CIPFA/LASAAC’s view that the definition of fair

value in IFRS 13 does not generally apply to property, plant and

equipment held by local authorities and that the use of the

measurement and disclosure requirements of Section 2.10 should be

restricted by a rebuttable presumption that these assets are not

profit generating for local authorities? If not, why not? What

alternatives do you suggest?

Q24 Do you agree with the approach in the Exposure Draft that all the

assets listed in paragraph 2.10.2.11 should be excluded from the

scope of the fair value measurement of the Code? If not, why not?

What alternatives do you suggest?

Q25 Do you consider that the scope exclusions in paragraph 2.10.2.11

should extend to both measurement and disclosure requirements of

the Standard or do you consider that the disclosure requirements

should apply to all assets measured at fair value? Please provide an

explanation for your response.

Q26 Do you agree with the approach to drafting of the fair value

measurement provisions in section 2.10 ie that only the main

principles and assumptions of the Standard are included in the Code?

If not, why not? What alternatives do you suggest?

Q27 Do you consider that the Code should include all the disclosure

requirements of IFRS 13 or do you consider that the Code should

only include the disclosure requirements definitely relevant to local

authorities? Please set out which of the disclosures you consider to

be relevant to your authority.

Q28 Do you consider that disclosures at paragraph 2.10.4.1 6) and 8) are

relevant to local authorities? If yes please set out the type of

18

transactions to which you consider such disclosures apply.

Q29 Do you consider the consequential amendments in relation to fair

value measurement as described in paragraph 57 above adequately

reflect the requirements of adoption of IFRS 13 in the Code? If not,

why not? What alternatives do you suggest?

Service Concession Arrangements (PFI and PPP Arrangements)

58. Interested parties will be aware that there are currently no International Financial

Reporting Standards that deal specifically with the accounting requirements for

the grantor for PFI /PPP arrangements. IFRIC 12 Service Concession

Arrangements, applies only to the operator, typically a private sector entity.

Grantors are normally public sector entities. CIPFA/LASAAC has taken the

opportunity to augment the provisions and guidance in the Code in relation to PFI

and PPP arrangements as new additional guidance is available in the form of

IPSAS 32 Service Concession Arrangements: Grantor. This new additional

guidance mirrors IFRIC 12 on relevant accounting issues (i.e., liabilities,

revenues, and expenses) from the grantor’s point of view. It also uses the same

criteria as IFRIC 12 to determine whether the operator or the grantor controls the

asset used in a service concession arrangement.

59. This guidance in particular sets out the accounting arrangements for:

the recognition of the liability

the inclusion of intangible assets

clarification on the point of recognition and

the accounting treatment where the local authority grants the operator the

right to earn revenue from third party users.

Recognition of the Liability

60. The recognition and measurement of the liability for PFI/PPP arrangements in the

2012/13 Code is based on the principles of IAS 17 Leases. The new guidance

available sets out that the liability recognised is a financial liability, and is

measured under IAS 39 Financial Instruments; Recognition and Measurement,

reflecting (in mirror form) the principles adopted by IFRIC 12. CIPFA/LASAAC’s

preliminary view is that this approach provides a better measurement of the

liability as well as being better mirror of the IFRIC. It therefore proposes that the

Code requires the liability to be recognised and measured as a financial liability in

line with IAS 39 rather than a finance lease liability under IAS 17 (as currently

required by the Code).

61. CIPFA/LASAAC considers that it is possible that any changes to the pattern of the

measurement of this liability might have financial consequences for local

authorities and is seeking evidence as to whether this would be the case.

62. Paragraphs 4.3.2.16-19 of the Exposure Draft include the proposed wording of

the 2013/14 Code on the basis of recognising and measuring the liability as a

financial liability. CIPFA/LASAAC has also included an alternative accounting

treatment with the liability continuing to be treated as finance lease (paragraphs

4.3.2.16-20 of the alternative treatment). This approach would be used as an

19

interim approach if evidence showed that measuring the liability as a financial

liability would have an adverse financial effect on local authorities.

CIPFA/LASAAC is therefore seeking interested parties views on the measurement

of the liability, and whether there is evidence to suggest that measuring the

liability on an IAS 39 basis in 2013/14 would have an adverse financial effect on

authorities.

63. The additional guidance permits the Code to include the grant of the right to the

operator model – under this model the local authority compensates the operator

for the service concession asset by granting the operator the right to earn

revenue from third-parties. It is considered that there are very few examples of

this type of arrangement in operation for local authorities. However, including

these provisions in the Code provides a clear set of accounting arrangements that

will enable any authority considering such an arrangement to evaluate the

financial consequences for its performance statements and financial position.

Interested parties should note that the accounting treatment suggested in the

Code Guidance Notes5 is consistent with the proposed Code requirements.

Intangible Assets

64. The current provisions of the Code do not refer to intangible assets. It is

considered that some PFI/PPP schemes might include intangible assets and

therefore the proposed amendments to the Code include appropriate provision for

service concession assets that are intangible assets.

Assets outside the Scope of Section 4.3 of the Code

65. The 2012/13 Code includes the accounting treatment for those assets that might

be part of a PFI/PPP arrangement but do not meet the control criteria in IFRIC 12,

and are therefore outside the scope of the IFRIC. It is considered that although

these transactions might not be very common for local authorities undertaking

PFI/PPP Schemes these provisions of the Code should be retained. The provisions

of paragraphs 4.3.2.4 - 4.3.2.6 of the 2012/13 Code have therefore been

included in a new Annex to section 4.3.

Assets under Construction

66. Both the 2012/13 Code and the proposed amendments to the 2013/14 Code

require assets to be recognised in accordance with the provisions of the Code in

relation to Property, Plant and Equipment and Intangible Assets (although the

latter would not have been explicit in Section 4.3 of the 2012/13 Code) ie when it

is probable that economic benefits and service potential will flow to the authority

and the cost of the asset can be measured reliably. However, the 2012/13 Code

currently includes the following exemplification of custom and practice in the UK:

“This will be when the asset is made available for use unless the local authority

bears an element of the construction risk, which will not be the case where

standard PFI contract terms are used. Where an authority does bear the

construction risk, it shall recognise an asset under construction prior to the asset

being made available for use where it is probable that the expected future

benefits attributable to the asset will flow to the authority.” (2012/13 Code

paragraph, 4.3.2.9)

5 Code of Practice on Local Authority Accounting in the United Kingdom Guidance Notes for Practitioners

2011/2012 Accounts, CIPFA December, 2011.odule

20

67. The additional guidance in the proposed amendments to the Code, following the

requirements of IAS 16 and IAS 38 sets out that:

“Similar to an asset the local authority constructs or develops for its own use, the

local authority would assess, at the time the costs of construction or development

are incurred, the terms of the contractual arrangements to determine whether

the service potential of the service concession asset would flow to the local

authority at that time.”

68. It is therefore debatable that the requirements of the additional guidance and the

2012/13 Code are requiring a substantially different accounting treatment. The

2012/13 Code anticipates in accordance with custom and practice that the asset

would not be recognised during the construction phase. The proposed

amendments to the Code suggests that recognition might take place

progressively as contractual provisions are met for elements of a scheme,

provided the recognition criteria are met. CIPFA/LASAAC considers that this

change is not likely to represent a significant change in accounting practice for

local authorities and therefore the Code does not include any transitional

provisions in relation to the accounting treatment of assets under construction

under a service concession arrangement.

Disclosures of Service Concession Arrangements

69. In the review of the provisions for Service Concession Arrangements it was

considered that the disclosures governed by paragraph 4.3.4.2 (values and

movements in assets and liabilities and an analysis of future payments over time)

are not required by IFRIC 12. However, these disclosures are required for WGA

purposes and therefore CIPFA/LASAAC will retain these disclosures. Please also

see comments at paragraph 89.

Service Concession Arrangements

Q30 Do you agree with CIPFA/LASAAC that it is appropriate to augment

the provisions of the Code in relation to service concession

arrangements based on the additional guidance now available to it?

If not, why not? What alternatives would you suggest?

Q31 Do you consider that the liability in service concession arrangements

is most effectively measured as a financial liability or a finance lease?

Please set out the reasons for your response.

Q32 CIPFA/LASAAC is proposing that the recognition and measurement of

the service concession liability as a financial liability should be

included in the 2013/14 Code. What do you consider the practical

and financial consequences would be of such a move (please include

in your response to this question your views on the appropriate

timescales for such a change)? Please set out the reasons for your

responses.

Q33 Do you agree that the current provisions in the Code should be

augmented to include the grant of the right of the operator (third

party payment) model from the additional guidance? If not, why not?

What alternatives would you suggest?

21

Q34 Do you consider that the provisions of the Code in Section 4.3 should

be extended to include intangible assets that are included in service

concession arrangements? If not, why not? What alternatives would

you suggest?

Q35 Do you agree that assets that do not meet the control criteria in

Section 4.3 of the Code should be excluded from Section 4.3 and

instead the treatment of such assets be included as an Annex to it? If

not, why not? What alternatives would you suggest?

Q36 Do you agree with CIPFA/LASAAC that the treatment of Assets under

Construction in the proposed augmented provisions of Section 4.3 of

the Code provide substantially the same accounting treatment and

therefore no transitional arrangements are required in the Code? If

not, why not? What alternatives would you suggest?

IFRS 7 Financial Instruments Disclosures – Offsetting Financial

Assets and Liabilities December 2011 70. In December 2011 the IASB issued amendments to IFRS 7 – Offsetting Financial

Assets and Liabilities, requiring information that will enable users of an entity’s

financial statements to evaluate the effect or potential effect of netting

arrangements, including rights of set-off associated with the entity’s recognised

financial assets and financial liabilities, on the entity’s balance sheet. The

requirements of the Standard have therefore been included in the proposed

amendments to Section 7.4 of the Code. It should be noted that this

amendment has not yet been adopted by the EU and if these amendments are

not adopted by the EU by 1 January 2013 they would not be able to be included

in the 2013/14 Code.

71. In addition the proposed amendments to the Code have resulted in a move of

paragraph 7.4.2.4 (introduced to the 2012/13 Code) to paragraph 7.4.4.1 with

paragraph 7.4.4.1 being moved to 7.4.5.16. Note that there have been no

changes to the requirements of paragraph 7.4.2.4.

IFRS 7 Financial Instruments Disclosures – Offsetting Financial Assets and

Liabilities (December 2011 amendments)

Q37 Do you agree that the Code Exposure Draft accurately incorporates

the requirements of the Amendments to IFRS 7 Financial

Instruments: Disclosures (December 2011)? If not, why not? What

alternatives do you suggest?

Other Minor Changes Reflecting Revisions to Accounting Standards,

Codes and Legislation

72. Further minor revisions to accounting standards are also reflected in the proposed

amendments to the 2013/14 Code. Proposed changes to the 2012/13 Code arise

from Deferred Tax: Recovery of Underlying Assets (Amendments to IAS 12)

issued by the IASB in December 2010. The Code paragraph A.1.2 includes

6 Note that the 2012/13 Code’s requirements for offsetting to which these proposed new disclosures relate are

at paragraph 7.4.4.1 but due to this relocation will be moved to paragraph 7.4.5.1.

22

proposed amendments to reflect the changes to the standard. The effective date

of this amendment is 1 January 2012. However, at the time of drafting this ITC

this amendment has not been adopted by the EU. The European Financial

Reporting Advisory Group (EFRAG) EU Endorsement Status Report sets out that it

is expected to be endorsed in Quarter 4 of 2012 and therefore it should be able to

be adopted by the 2013/14 Code. It should be noted, that if these amendments

are not adopted by the EU by 1 January 2013 they would not be able to be

included in the 2013/14 Code.

73. No further accounting standards or legislation or other changes requiring

amendment of the Code (other than those itemised in paragraphs 122-125) have

been identified to date. However, it is possible that additional legislation,

regulations or statutory guidance relating to 2013/14 will be issued prior to the

Code being finalised. If this is the case, CIPFA/LASAAC may incorporate the

requirements into the published Code.

Other Minor Changes Reflecting Revisions to Accounting Standards

Q38 Do you agree that the amendments to the Code accurately reflect the

amendments to IAS 12? If not, why not? What alternatives would

you suggest?

Q39 Are there any further accounting standards or legislative changes

that need to be reflected in the Code?

Group Accounts Standards

74. Interested parties to the consultation on the 2013/14 Code will be aware that the

following Group Accounting Standards have an effective date of 1 January 2013

and therefore would normally fall to be adopted in the 2013/14 Code:

IFRS 10 Consolidated Financial Statements;

IFRS 11 Joint Arrangements;

IFRS 12 Disclosure of Interests in Other Entities;

IAS 27 Separate Financial Statements (as amended in 2011); and

IAS 28 Investments in Associates and Joint Ventures (as amended in 2011)

However, the EFRAG EU Endorsement Status Report of 29 June 2012 sets out

that:

“On 1 June 2012, ARC [Accounting Regulatory Committee] voted on a regulation

that requires IFRS 10, IFRS 11, IFRS 12, IAS 27 and IAS 28 to be applied, at the

latest, as from the commencement date of a company’s first financial year

starting on or after 1 January 2014 (i.e. early adoption would be permitted once

the standards have been endorsed).”

75. The Code is based on IFRS that are adopted by the European Union. From the

extract above formal adoption of the Group Accounting standards appears to be

on or after 1 January 2014 (with early adoption permitted). Taking into account

the significance of the changes that will be brought forward by these standards

23

CIPFA/LASAAC is not minded to adopt them early. The Standards are therefore

not included in this consultation on the 2013/14 Code.

Annual Improvements to IFRSs 2009 – 2011 Cycle

76. Annual Improvements to IFRSs 2009 – 2011 Cycle was issued in May 2012. The

improvements have an effective date of 1 January 2013 and would therefore

normally fall within the scope of the adoption of the 2013/14 Code. However, the

EFRAG EU Endorsement Status Report currently sets out that the amendments

brought about by the Improvements is expected to be endorsed in Quarter 1 of

2013, after the effective application date of the 2013/14 Code. The

Improvements are therefore not included in this consultation.

Interim Outcomes of the CIPFA/LASAAC Post Implementation

Review

77. Interested parties to the consultation on the 2012/13 Code will be aware that

following the first full year implementation of the IFRS-based Code for local

authorities CIPFA/LASAAC wished to undertake a post-implementation review.

The Post Implementation Review considered two principal forms of evidence for

the first stage of the review, 1) the reports from the audit bodies following the

audits of the 2010/11 financial statements and 2) the responses to questions

included in the 2012/13 ITC on the post-implementation review. In addition the

Review benefits from practitioner representation (including the Vice Chair of the

Local Authority Accounting Panel) and audit body representation from across the

jurisdictions of the UK.

78. This section of the consultation sets out the significant proposed amendments

that the Post Implementation Review has identified as clarifications to the Code

resulting from the issues raised. In addition the Post Implementation Review

Group has recommended a number of areas where additional or revised

application guidance may need to be considered and CIPFA/LASAAC has referred

these issues to the Local Authority Accounting Panel.

Section 2.3 Government and Non-Government Grants

79. Currently, the Code does not require separate identification of restricted balances

of unspent revenue grant, but the application guidance recommends that where

conditions have been met or there are no conditions such grants should be held in

earmarked reserves. As these balances can only be applied for the purposes of

the grant and/or in specified financial years and are likely to be subject to grant

restrictions, it would be inappropriate for these balances to be included in the

General Fund as if they were balances available for general use. CIPFA/LASAAC

proposes that the amendments to the Code encourage the approach that is

currently recommended in application guidance. CIPFA/LASAAC has therefore

introduced a new paragraph at 2.3.2.17 to facilitate this.

Section 3.4 – References to Exceptional Items

80. Currently, the 2012/13 Code includes four references to exceptional items.

Paragraph 3.4.2.80 of the Code requires that exceptional items and prior period

adjustments are included in the summary of significant accounting policies where

these items have a significant effect on the amounts disclosed in the financial

statements. The PIR Group recommended that references to exceptional items

should be removed from this requirement as the term “exceptional items” is not

24

used in IFRS. This recommended amendment is thus included at paragraph

3.4.2.80.

81. The non-statutory Housing Revenue Account disclosures for England, Scotland

and Wales include a requirement to disclose exceptional items. These disclosure

requirements are considered in the review of disclosures paragraph 89 below.

Section 4.1 of the Code Property, Plant and Equipment – the use of the term

Enhancement

82. The review process has identified that the paragraphs on property, plant and

equipment recognition use the term ”enhancement” in a way that is not used in

IAS 16. This may have caused some confusion for practitioners used to applying

the SORP, where enhancement was a defined criterion for capitalisation.

References to enhancement have therefore been removed in the proposed

amendments and replaced by “adding to” an item of property, plant or

equipment, the term used in IAS 16. Paragraphs 4.1.2.17 to 4.1.2.19 of the Code

contain proposed minor clarifications that serve to align the Code more closely to

the provisions of IAS 16 which do not refer to enhancements or restoration. A

minor correction to paragraph 4.1.2.18 has also been identified.

Section 4.1 of the Code Property, Plant and Equipment – Valuation Issues

83. A minor clarification of the requirements relating to decreases in the carrying

amount of an item of property, plant and equipment in relation to paragraph

4.1.2.34 has been removed from this paragraph as the qualifying commentary

about the non-specific nature of a revaluation decrease is not directly supported

by the standard. The text has therefore been removed from the Code.

84. The issue was raised that there has not been a complete understanding of the

requirements of the Code as it adopts IAS 16 in relation to frequency of

revaluations. There are currently no adaptations in relation to the frequency

itself (although the Code states that valuations should be carried out at intervals

of no more than five years) and therefore the Code requires that the provisions of

IAS 16 are followed even if they are not explicitly stated within the Code. This

might have resulted in an area of confusion for local authorities. The Post

Implementation Review Group has therefore added proposed amendments to

paragraphs 4.1.2.35 and 4.1.2.36 directly based on the wording of IAS 16 to

clarify the requirements. CIPFA/LASAAC is aware that this might represent a

change in practice for some local authorities and will work with the Local

Authority Accounting Panel to develop appropriate application guidance for local

authorities.

Section 4.2 Leases and Lease Type Arrangements

85. The Post-Implementation Review Group is aware that some authorities are having

difficulties in the interpretation of issues at the inception of a lease or when there

are changes in the terms of a lease. A number of minor clarifications have

therefore been added to Section 4.2 Leases and Lease Type Arrangements of the

Code which follow the Code’s adoption of IAS 17 Leases. The following changes

have been proposed:

Definitions of the inception of the lease, the commencement of the lease term

and the lease-term have been added at paragraphs 4.2.2.4 – 4.2.2.6.

A new paragraph on the classification of leases has been added at 4.2.2.9.

25

Minor clarification of the wording of paragraph 4.2.2.13 has been added

which relates to changes in lease terms – note that this is not a substantial

change.

86. The Post Implementation Review Group identified that the Code did not assist

practitioners where no premium is paid but lease rentals and payments are at a

peppercorn ie for non-commercial arrangements. IAS 17 makes the presumption

that leases are entered into on a commercial basis. The PIR Group recommended

to CIPFA/LASAAC that the Code includes an additional commentary which

indicates that the assessment of lease classification of assets transferred to

another entity where no lease premium is paid but on the basis of a peppercorn

rent would exclude the assessment of the present value of the minimum lease

payments being at least substantially all of the fair value of a leased asset.

Proposed amendments have therefore been made to new paragraph 4.2.2.10 to

reflect this.

Section 4.9 Non-Current Assets Held for Sale and Discontinued Operations

87. The Post Implementation Review Group considered that the four specific criteria

which must be met before an asset can be classified as being held for sale

arguably gives these requirements greater weight than in IFRS 5 Non-Current

Assets Held for Sale and Discontinued Operations. The Post Implementation

Review Group has therefore recommended that the wording of the provisions of

the Code be brought closer to that of the Standard. It is likely that this is a

matter of emphasis only.

Complete Set of Financial Statements

88. The Post Implementation Review Group has undertaken the initial stages of a

review of the complete set of financial statements. Its initial view is that the

financial statements largely achieve their intended purpose. CIPFA/LASAAC

considers that at this juncture no further changes be considered to these

statements and instead that resources be channelled into finding good practice

examples of these statements and disseminating this via application guidance.

Review of Disclosures

89. The Post Implementation Review Group identified that there are a number of

disclosures within the Code that are not required by financial reporting and

accounting standards or by a clear statutory requirement to include such

information as disclosure notes in the financial statements, although a number of

the reporting requirements relate to statutory accounts or requirements. These

disclosure requirements have in all likelihood arisen as a result of custom and

practice or for a clear financial reporting need eg the disclosure of the breakdown

of audit fees. The Group recommended that these disclosures be reviewed as a

part of the consultation process on the 2013/14 Code. In addition these

disclosures are subject to discussions between CIPFA, the four administrations

and other interested parties to seek their views on whether they consider these

disclosures as being necessary (and if so might instead bring forward appropriate

statutory amendments).

90. The relevant disclosures are listed at Appendix A to this ITC with initial comments

from CIPFA/LASAAC. The PIR Group considered that these disclosures be

reviewed against the criteria that have been used in previous reviews of

disclosures eg on the introduction of the first IFRS based Code ie:

26

relevance/applicability to local authorities and/or that these transactions

normally represent material transactions for local authorities

the availability of information in other disclosures or opportunities for

reporting this information by means of other media

consistency with the FReM, CIPFA/LASAAC has augmented this criteria to

include - subject to the disclosure assisting local authorities to present a true

and fair view of its financial statements.

91. A number of these disclosures are also reported under the Whole of Government

Accounts requirements. CIPFA/LASAAC recommends that these disclosures are

retained but will consider these in the forward work programme for the Code.

Interim Outcomes of the CIPFA/LASAAC Post Implementation Review

Q40 Do you agree that the Code should encourage the treatment of

separate identification and disclosure of restricted balances of

unspent revenue grant? If not, why not? What alternatives do you

suggest

Q41 Do you agree that the Code should remove references to exceptional

items from the Code and specifically from paragraph 3.4.2.80? If not,

why not? What alternatives do you suggest?

Q42 Do you agree with the proposed amendments to the Code to remove

the term enhancement ie paragraphs 4.1.2.17 to 4.1.2.19 including

the minor correction? If not, why not? What alternatives do you

suggest?

Q43 Do you agree with the proposed amendment to paragraph 4.1.2.34 in

relation to decreases in the carrying amount of property, plant and

equipment? If not, why not? What alternatives do you suggest?

Q44 Do you agree that the proposed clarifications of the requirements for

the frequency of property valuations in paragraphs 4.1.2.35 and

4.1.2.36 are appropriate interpretations of IAS 16 Property, Plant and

Equipment? If not, why not? What alternatives do you suggest?

Q45 Do you agree that the proposed minor amendments and additions to

paragraphs 4.2.2.4-4.2.2.6, 4.2.2.9 and 4.2.2.13 are in accordance

with the Code’s adoption of IAS 17 Leases? If not, why not? What

alternatives do you suggest?

Q46 Do you agree that the proposed additional text at proposed new

paragraph 4.2.2.10 adequately reflects the substance of the

arrangements when local authority leased assets are leased without

premiums but at a peppercorn or a nominal amount for non-

commercial leases? If not, why not? What alternatives do you

suggest?

Q47 Do you agree that the proposed amended text in paragraphs 4.9.2.13

and 4.2.9.14 relating to assets held for sale, appropriately reflects

the requirements of IFRS 5 as adopted by the Code? If not, why not?

What alternatives do you suggest?

27

Q48 Do you concur with the view of the Post Implementation Review

Group in relation to its initial view that no changes are required to

the complete set of financial statements? If not, why not? What

alternatives do you suggest?

Q49 Do you concur with CIPFA/LASAAC’s appraisal for the proposed

retention, amendment, or deletion of the relevant disclosures listed in

Appendix A. If not, please explain why not, clearly itemising the

disclosure to which you refer. What alternatives do you suggest?

Accounting for Schools in Local Government (in England and Wales

only)

92. Following last year’s consultation on the Code and the low response rate to the

separate Invitation to Comment Accounting for Non-Current Schools’ Assets,

CIPFA/LASAAC established a Working Party to consider Accounting for Schools in

Local Government.

93. As a part of this Working Party’s preliminary analysis of the Terms of Reference

and following a recommendation from the Financial Reporting Advisory Board

(FRAB), the Working Party considered whether local authorities control the bodies

who might recognise the non-current assets under either IAS 27 Separate and

Consolidated Financial Statements or SIC 12 Consolidation – Special Purpose

Entities ie schools governing bodies or school trusts.

94. It was not possible to consider the trusts in which some assets are vested but it

was possible to consider whether or not governing bodies could be consolidated.

Appendix B to this ITC sets out the full basis of conclusions of the Working Party.

This is summarised below.

Governing Bodies Are Capable of Being Considered as Entities

95. The Working Party considered that, under the normal treatment of entities under

the IFRS based Code, governing bodies that have delegated budgets are capable

of being regarded as entities. They have corporate status and are able to enter

into contracts, authorise expenditure and some can employ teachers.

Control Test under IAS 27 Separate and Consolidated Financial Statements

96. It appears on examination of the control test that the governing bodies of

community (and community special schools) schools in England would be

controlled by local authorities. This is based on the authority’s ability to control

the significant operational policies of the governing body, particularly the

authority’s scope to initiate the statutory proposals to make organisational

changes to the school (and again particularly focusing on the ability to issue

proposals for discontinuance) and thus benefit from these procedures by

achieving its objectives (for example, so as to achieve its duties under Section 13

of the Education Act 1996). However, as the income, expenditure and assets are

already recognised in local authority financial statements it is unlikely that group

financial statements would present a significantly different analysis from the

authority’s single entity financial statements.

97. The Working Party has also considered the position for the four main categories

(including community special schools) of maintained schools in Wales. Although

28

the position is very finally balanced the Working Party considers that the balance

of control for community schools in Wales lies with the authority as community

schools governing bodies cannot initiate their own statutory proposals for school

organisational changes (with the exception of the proposals to change category of

school). In addition, although following any objections the decisions are referred

to Welsh Ministers, the Ministers cannot modify a proposal in a way that would in

effect substitute another proposal for the published one.

98. However, for the other categories of maintained school ie voluntary controlled,

voluntary aided, foundation schools in England and Wales and foundation special

schools in England, to balance this control these governing bodies can initiate

their own statutory proposals to change the organisation of the school including

school closure (see Appendix B – draft basis of conclusions on the consultation

pages of the CIPFA website). In addition, in England the governing body and

trustees of a foundation or a voluntary school can appeal against a decision on

any proposals that apply to their school. The decision is then with the School’s

Adjudicator and therefore ultimately the authority does not have control over this

process. This analysis is therefore not conclusive for foundation (and foundation

special schools in England), voluntary controlled and voluntary aided schools.

SIC 12 Consolidation - Special Purpose Entities

99. The Working Party also considered the relationship between the governing bodies

of the remaining three categories of maintained school in England and in Wales

(including foundation special schools in England) and local authorities under SIC

12 Consolidation - Special Purpose Entities, with particular regard to the

indicators of control under paragraph 10 of the SIC. It concluded that it could be

argued that there was a beneficial relationship (in that if the governing bodies

were not providing school places the authority would have to do so itself) but

considered that this was limited by the lack of positive evidence against the other

indicators. Authorities may have exposure to risk of loss, but there is no

evidence that this is a significant risk to the authority. Also authorities in England

are unable to avail themselves of the surpluses that might be created by schools.

Therefore the Working Party is of the view that local authorities do not control the

governing bodies of the three other categories of maintained school in England.

100. In Wales the position is even more finely balanced as there is the theoretical

ability to be able to utilise any positive position in schools budget but with a

similar position in terms of the risk of loss. The Working Party is of the view,

however, that there is no clear case for control of schools governing bodies in

Wales for the foundation, voluntary controlled and voluntary aided schools.

Impact on the Financial Statements of Local Authorities

101. As entities within the control of local authorities community and community

special schools governing bodies in England and Wales would fall to be reported

within local authorities’ Group Accounts. The Working Party is of the view that

any consolidation of local authority interests in community school governing

bodies within local authority Group Accounts would not produce a substantially

different report for the Comprehensive Income and Expenditure Statement and

Balance Sheet. The only statements where there would be a different analysis of

schools’ financial information would be in the Cash Flow Statement and the Group

Segmental Analysis.

102. The Working Party is therefore of the view that it would not be useful to the

readers of the financial statements to have two separate reports of the same

information albeit with a different subjective analysis or where there are not

29

materially different reports of cash flows. Therefore the Working Party have

proposed an adaptation to the Code’s definition of the “single entity financial

statements” ie that it is extended to include the income, expenditure, assets,

liabilities, reserves and cash flows of any governing bodies that are required to be

consolidated into local authority financial statements. This definition would in

effect form a sub-consolidation of the governing bodies within the group

boundary of the authority. It would require an adaptation to Chapter Nine of the

Code. CIPFA/LASAAC proposes that such an adaption is made.

Non- Current Asset Recognition Decision

103. The Working Party did not identify any further recognition criteria than those

identified by CIPFA/LASAAC in its consultation last year. It considered the impact

of the above conclusions about the control relationship (between local authorities

and maintained schools’ governing bodies) on the recognition of non-current

assets for the governing bodies that are not in the control of local authorities.

104. For categories of school not deemed by the Working Party to be within the local

authority boundary (ie not within the control of the local authority), the Working

Party consider that assets that are not within the ownership of local authorities

and whose benefits and day to day use is within the control of the governing body

(under delegated arrangements to the head teacher) should not be recognised in

local authority balance sheets. This might give rise to queries in relation to

school playing fields that are traditionally owned by local authorities. However,

the Working Party considers that the same arguments are likely to apply to these

assets.

105. For community schools whose governing bodies are in the control of the local

authority the Working Party considers that, as:

ownership resides within the authority

the entity (the governing body) in control of its day to day use is also

within its group boundary

authorities control the major organisational changes in relation to the

school and (via the admission’s policy) who receives the benefits

it would follow that the local authority would recognise the assets in its balance

sheet.

Income and Expenditure Recognition

106. The recognition of income and expenditure in relation to schools would need to

follow the local authority’s responsibilities. Dedicated Schools Grant in England

or Revenue Support Grant for authorities in Wales would be recognised as now

and expenditure would need to be recognised as incurred ie recognition of

employee expenditure where the authority is the employer or when necessary as

third party payments to schools. This is in line with the normal requirements of

income and expenditure recognition for the Code.

Schools’ Balances

107. In England and Wales, the amount of unspent budgets by maintained schools is

normally presented as usable revenue reserves earmarked within the General

Fund Balance. However, this presentation is not based on a specification in the

Code about the status of these reserves, which has also been the subject of

30

debate and is a matter of interpretation. The status of schools’ balances is

discussed in more detail in the draft Basis of Conclusions (accompanying this ITC

and available on the consultation pages of the CIPFA Website) which sets out that

there are two interpretations of the status of school’s balances. In accounting

terms, CIPFA/LASAAC considers that the substance of the transaction is that

these reserves are the reserves of the individual school and should be recognised

accordingly in the financial statements of local authorities. Following the

adaptation proposed in paragraph 102 above these reserves would only be

recognised in the case of community and community special schools in England

and Wales. Where authorities consider that a legal interpretation might require a

different treatment, they would need to recognise the reserves accordingly. This

has been accommodated in the proposed Application Note.

Application of the Code’s Requirements and Transitional Treatment

108. CIPFA/LASAAC considers that the accounting analysis summarised above and set

out in Appendix B to this ITC is complex. However, it is based on the accounting

standards adopted by the Code with the exception of the adaptation referred to in

paragraph 102. It proposes, however, that to assist authorities it will add an

Application Note in a new Appendix D to the Code. This Application Note is

founded in the Basis of Conclusions of the Working Party and sets out the

principles that would apply to the accounting treatment for the income,

expenditure, assets and liabilities, reserves and cash flows of maintained schools

in England and Wales. This new application note is listed with the other proposed

amendments to the Code.

109. CIPFA/LASAAC considers that some authorities will need to de-recognise assets

and liabilities of some categories of maintained school. In addition to the

application note set out above CIPFA/LASAAC invites interested parties to

comment on whether they need specific application guidance on the de-

recognition process. CIPFA/LASAAC can then make the relevant

recommendations to the Local Authority Accounting Panel.

Accountability for the Income and Expenditure of Maintained Schools

110. CIPFA/LASAAC is aware that the governing bodies of voluntary controlled,

voluntary aided, foundation and foundation special schools not being within local

authorities reporting boundary may have repercussions for other reporting

requirements and other duties of the authority. CIPFA/LASAAC is seeking

interested parties’ views on what they consider these issues to be and whether

this leads to any consequential difficulties for their accountability for such

expenditure (for example, under the duties of the S151 officer of the authority).

Accounting for Schools in Local Government

Q50 Do you agree with the views of the Working Party that governing

bodies are entities capable of consideration for consolidation into the

local authority boundary? If not, why not? Please give the reason for

your response.

Q51 Do you agree with the analysis of the Working Party in relation to its

views on consolidation or non-consolidation of governing bodies (see

Appendix B)? If not, why not? Please set out the reason for your

response across the various categories of maintained schools.

31

Q52 Do you agree with the Working Party in relation to its consequential

analysis in relation to schools’ non-current assets? If not, why not?

Please give the reason for your response.

Q53 Do you agree with the Working Party in relation to its proposal for

adaptation to the Code in terms of the recognition of the income,

expenditure, assets, liabilities, reserves and cash flows of governing

bodies controlled by schools in the single entity financial statements

of local authorities? If not, why not? Please give the reason for your

response.

Q54 Do you agree with the Working Party’s view on the treatment of

income and expenditure relating to maintained schools? If not, why

not?

Q55 Do you agree with the use of an application note in the Appendix to

the Code? If not, why not?

Q56 Do you agree that the adaptation to the Code referred to in question

53 and the consideration of governing bodies as separate entities

capable of consideration for consolidation in local authority financial

statements represents a change in accounting policy and these

changes should be applied from the 2013/14 year and applied

retrospectively? If not, why not?

Q57 Do you consider that the conclusions of the Working Party in relation

to the non-consolidation of the income and expenditure of the

governing bodies of voluntary controlled, voluntary aided and

foundation (and foundation special schools in England) gives

authorities any consequential difficulties for their accountability for

such expenditure, for example, under the duties of the S151 officer of

the authority? If so please set out what these issues would be.

Q58 Do you consider that further detailed application guidance is needed

for authorities as a consequence of the proposed treatment for the

non-consolidation of the income and expenditure of the governing

bodies of voluntary controlled, voluntary aided and foundation and

foundation special schools? If so, please set out the areas where you

consider detailed application guidance might be needed.

End of the Landfill Allowance Trading Scheme in England

(application also to the Scheme as it applies in Scotland)

111. The Waste Review7 has announced the ending of the Landfill Allowance Trading

Scheme (LATS) after the 2012/13 scheme year in England. The provisions for

England for LATS therefore need to be removed from the Code, effective from the

2013/14 edition. It should be noted that the Scheme remains suspended in

Scotland. CIPFA/LASAAC considers that currently the provisions of paragraphs

2.4.2.1 to 2.4.2.7 should be removed from the Code and appropriate

amendments be made to the introductory paragraphs at 2.4.1.1 to 2.4.13. The

7 Government Review of Waste Policy in England 2011, DEFRA June 2011

32

requirements for Landfill Allowance Schemes in Wales and Northern Ireland

remain unchanged.

End of the Landfill Allowance Trading Scheme in England (application also to the

Scheme as it applies in Scotland)

Q59 Do you agree that the provisions of paragraphs 2.4.2.1 to 2.4.2.7

should be removed and appropriate consequential amendments be

made? If not, why not? What alternatives would you suggest?

Police and Fire Reform (Scotland)

112. The Police and Fire Reform Bill (Scotland) 2012 was introduced to the Scottish

Parliament in January this year and passed Stage 3 on 27 June 2012. The Bill

introduces the requirement to establish a new single Police Service and a new

single Fire and Rescue Service (anticipated to be from 1 April 2013). The Bill

also introduces a requirement for the creation of the Scottish Police Authority

responsible for the governance, oversight and maintenance of the Police Service.

These new bodies are not anticipated to be bodies that follow the Code and

therefore, subject to legislative confirmation references to Police and Fire Boards

will be removed from the Code.

Police and Fire Reform (Scotland)

Q60 Do you agree that subject to legislative confirmation references to

Police and Fire Boards in Scotland should be removed from the Code?

If not, why not? What alternatives would you suggest?

Localism Act 2011

113. The Localism Act 2011 provides local authorities with a new general power of

competence, allowing them to do anything that an individual generally may do,

other than that which is specifically prohibited. A respondent to last year’s

consultation suggested that authorities might wish to enter into derivative

financial instruments using the power and that the Code might consider adding

guidance on this. The following commentary by CIPFA/LASAAC is not in any way

a commentary on whether or not authorities are able to enter into derivative

financial instrument transactions. It is for the individual authority to decide

whether or not it is lawful to enter into such transactions.

114. CIPFA/LASAAC is of the view that IAS 39 Financial Instruments; Recognition and

Measurement covers the accounting requirements for derivatives and is adopted

by the Code. Therefore where the Code does not refer to the accounting

treatment for particular transaction authorities should refer directly to the IAS

although it should be noted this must be as adopted by the EU. A minor

amendment to clarify this has been included in the Code. Consequently, at this

juncture CIPFA/LASAAC considers that there is no need for any further

amendments to the Code on this issue.

33

Localism Act 2011

Q61 Do you agree with CIPFA/LASAAC that the Code need only include a

minor amendment and need not include any significant additional

provisions in relation to accounting requirements for derivatives? If

not, why not? What alternatives would you suggest?

CIPFA’s Code of Practice on Transport Infrastructure Assets

Background

115. The Code of Practice on Transport Infrastructure Assets (the Transport

Infrastructure Code) was published in March 2010. The Transport Infrastructure

Code is intended to serve as best practice guidance for those who are responsible

for the management of infrastructure assets and as a tool for those who audit

their performance. A key principle that underpins the Code is that the same data

should be capable of serving the needs of asset management, financial

management, budgeting and financial reporting. The Transport Infrastructure

Code therefore uses a Depreciated Replacement Cost (DRC) approach to

valuation that provides the current cost of replacing an asset with its modern

equivalent asset, less deductions for all physical deterioration and impairment.

116. CIPFA/LASAAC consulted on voluntary early adoption of the measurement

requirements of the Transport Infrastructure Code in the Accounting Code as part

of its 2012/13 consultation. The responses reported substantial practical

difficulties in implementing the Transport Infrastructure Code. CIPFA/LASAAC

therefore considered that it would not be appropriate at that juncture to include

either of the voluntary options proposed in the Accounting Code.

117. HM Treasury has set a timetable for gradual transition to reporting on a current

cost basis for transport infrastructure assets within the Whole of Government

Accounts (WGA). Interested parties will be aware that the WGA timetable

commenced in 2009/10. The remainder of this timetable will require the

withdrawal of historical cost based reporting by 2012/13. Interested parties will

also be aware that the current measurement basis led to one of the qualifications

of the Whole of Government Accounts, and that this will be an area for increasing

scrutiny until such time as the data provided for WGA purposes is sufficiently

robust that the qualification can be removed.

Adoption of Measurement Provisions of the Code of Practice on Transport

Infrastructure Assets

118. The Accounting Code currently measures infrastructure assets at depreciated

historical cost. Whilst this is compliant with the requirements of IFRS it is not

likely to be the most appropriate measurement base for the transport

infrastructure assets of local authorities. CIPFA/LASAAC has for many years

expressed the view that current value accounting is the more appropriate

measurement base for local authority assets.

119. CIPFA/LASAAC also recognises that until the Accounting Code adopts the

measurement requirements of the Transport Infrastructure Code authorities are

likely to need to operate dual reporting arrangements.

120. Given its views on the benefits of current value accounting, and taking into

consideration the benefits of aligning the measurement principles of both Codes,

34

CIPFA/LASAAC considers that only insurmountable practical issues will prohibit a

future move to using DRC as the measurement base. CIPFA/LASAAC is therefore

proposing to require full adoption of the measurement requirements of the

Transport Infrastructure Code in the Accounting Code from the 2014/15 financial

year (including comparative information from 2013/14). However, it is seeking

local authorities’ and other interested parties’ views on the practical issues they

will face prior to full adoption. CIPFA/LASAAC is particularly seeking views on the

costs and benefits of the move to this measurement base, bearing in mind the

requirement to provide sufficiently robust data for WGA purposes.

121. CIPFA/LASAAC wishes to allow authorities sufficient time to ensure that their

management information and other systems are able to provide the robust data

needed to support the carrying value of the assets reported in the financial

statements, prior to introducing these changes. CIPFA/LASAAC is therefore

interested in evaluating any evidence interested parties can provide regarding the

implications of introducing current value as the measurement basis in 2014/15.

In order to assist interested parties with their assessment of the practical issues

relating to the adoption of the DRC measurement requirements in the Accounting

Code, Appendix C to this ITC shows the information that authorities will need to

disclose. This is in the form of an extract of the additional columns required to be

added to local authorities’ property, plant and equipment note to demonstrate the

anticipated additional information requirements.

CIPFA Code of Practice on Transport Infrastructure Assets

Q62 Do you agree with CIPFA/LASAAC’s proposal to move to measuring

transport infrastructure assets at DRC (in accordance with the

requirements of the Code of Practice on Transport Infrastructure

Assets) in the 2014/15 Code? If not, why not? Please give reasons

for your answer. What alternatives would you suggest?

Q63 What practical issues do you consider local authorities would face in a

future move to the measurement of transport infrastructure assets on

a DRC basis? Please set out how you consider these practical issues

will impact on financial reporting of transport infrastructure assets.

Please also set out the costs and benefits of such a future move,

bearing in mind the requirement to provide sufficiently robust data

for WGA purposes.

Local Government Finance Bill 2011

122. The Local Government Finance Bill was introduced to Parliament in December

2011. The Bill will bring forward a number of significant changes to local

government finance.

123. The Business Rates Retention Scheme (England) to be implemented from 1 April

2013 will permit local authorities to retain a proportion of the percentage of total

business rates. The Scheme will include:

a duty for billing and precepting authorities to pay a “tariff” to or receive a

“top-up” from central government and for billing authorities to make

payments to upper tier authorities

a “levy” on disproportionate growth and a “safety net” payment

35

allowing authorities to retain in full the rates growth in designated Tax

Increment Financing and Enterprise Zone Areas

local authorities can chose to form pools and be treated as a single authority

under the Scheme.

It is likely that some amendments to the Code’s requirements for accounting for

non-domestic rates will be required to reflect these developments.

124. In addition the Bill also requires that authorities establish a council tax reduction

scheme (which replaces council tax benefit schemes) by 31 January 2013. It is

not at this stage clear that this will have a significant impact on the provisions of

the Code.

125. The timetable for the legislative provisions to bring forward the changes outlined

above is unlikely to coincide with the production timetables for the 2013/14 Code.

CIPFA/LASAAC has therefore agreed to issue an Update to the 2013/14 to take

forward the accounting requirements needed to implement the new system for

Business Rates (and the council tax reduction scheme should this also require

changes to the Code).

Further Guidance

126. CIPFA/LASAAC would be interested to hear interested parties’ views on whether

there are any areas within the Code where additional guidance would be

welcomed or improvements to the Code could be made. Interested parties are

asked to identify areas where additional guidance or improvements would be

helpful, and provide details of any difficulties being experienced.

Further Guidance

Q64 Are there any areas within the Code where additional guidance or

improvements to the Code would be helpful? Please support your

answer by giving details of the difficulties being experienced.