Stephen Sheen: Closedown 2017-18 leaves little time to relax
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I was planning to write an article about the prognosis for the 2017/18 accounts closedown and accompanying audit issues. However, the sad demise of Mark E. Smith caused me to think that a celebration of The Fall was perhaps in order, particularly an analysis of the pivotal place of their classic track Pay Your Rates in the panoply of songs about local government finance. On third thoughts, perhaps not. Back to the original plan.
Accelerated Closedown
For good or bad, 2018 will be the year of the Great Leap Forward, implementing the earlier closing provisions that were forewarned in the 2015 Accounts and Audit Regulations. Dates for accounts closedown and publication are both accelerated:
- Section 151 officers will need to be satisfied that the draft accounts are in a “true and fair” condition before the first working day in June (ie, 1st June this year).
- The mandatory period for public inspection currently remains in force but moves forward to cover the first ten working days in June. This means that the overall 30 working day period cannot start before 2nd May but cannot extend beyond 12 July.
- Audited accounts are to be published by 31 July.
The first two of these have been brought forward a month, but the third is two months earlier than 2016/17. Your auditors may be particularly challenged this year to get their work done in time (and might not be particularly motivated to do so if this is the last year of their appointment). Note, though, that 31 July is a target rather than a deadline. If the audit cannot be completed by this date, there are statutory arrangements that require an authority to apologise to its expectant public and then publish audited accounts as soon as reasonably practicable thereafter.
New Accounting Requirements for 2017/18
The Accounting Code for 2017/18 does not feature any onerous new requirements.
There are new provisions for narrative reporting, encouraging the application of integrated reporting (IR) principles. According to the International Integrated Reporting Council’s website, IR allows you to tell the authority’s value creation story through the concept of connectivity of information, showing how strategy, governance, performance and prospects (in the context of the authority’s external environment) combine to bring value in the short, medium and long term.
However, the underlying code requirement is more simply for the narrative report to satisfy readers’ needs in understanding the authority’s financial performance and financial position. So, if your readership has been clamouring to hear your value creation story, IR is the thing for you. Otherwise, it can be a “thanks, but no thanks”.
The code has been beefed up to confirm that going concern is not an issue for local authorities (and should not therefore be an issue for auditors). This should end the curious trend of authorities being asked to prepare going concern statements.
For pension fund administering authorities, there is a new requirement to disclose transaction costs for each major investment asset class.
However, as this disclosure has previously been promoted as good practice and then recommended practice, it will already have been adopted by most authorities.
And a reminder that this was the year that the Highways Network Asset was supposed to be arriving in highways authorities’ balance sheets, adding many “carillions” of pounds to non-current asset balances. But implementation has been postponed indefinitely pending the guaranteed availability of key multipliers from the Department of Transport.
Looking Forward
Although 2017/18 is a light year for new accounting requirements, there are a number of new standards pending that have a significant potential to impact on the general fund balance. Changes to lease accounting rules are still in development, but new arrangements for financial instruments and revenue recognition come into effect on 1 April 2018.
Although the new arrangements do not impact on the 2017/18 accounts, it is highly recommended that their effect is assessed during this year’s closedown work.
The greatest risks apply to “available for sale” investments (which may lose their concession for the revenue effect of gains and losses in value to be deferred until the investment is derecognised) and loans where there is a risk that repayment will not be forthcoming but the borrower has yet to default (see articles here and here for further details).
The revenue recognition provisions are likely to have less practical effect but might be significant for authorities providing goods and/or services under contracts that straddle financial years. The rules introduce a more rigorous framework for determining when income can be credited and allow costs of obtaining a contract to be spread over the contract term.
Which should will leave a little time for work on that list of songs inspired by local government finance. At number two, Half Man Half Biscuit’s Trumpton Riots, a tale of the consequences of spending cuts at the Trumptonshire Fire Brigade. Number three?
Stephen Sheen is the managing director of Ichabod’s Industries, a consultancy providing technical accounting support to local government.
