MOTB speakers and attendees call for permanent IFRS 9 override

Attendees at Room151’s Monthly Online Treasury Briefing (MOTB) have again demonstrated a strong preference for the IFRS 9 statutory override to be made permanent.

A poll on the MOTB session today (27 May 2022), showed that 88% did not want the override to be allowed to expire. Sixty-five percent thought it should be made permanent and 23% suggested it should be extended for another set period.

This reinforces Room151’s recent survey of treasury managers and section 151 officers, which produced an 87% figure in response to an identical question (68% preferring a permanent override and 19% seeking an extension).

The government will have to decide soon whether to continue the statutory override of IFRS 9’s requirements relating to fair value movements on pooled investments. However, the view of frontline finance professionals seems clear.

“It just feels like this should be made permanent. There is enough complication in the rest of our accounts in terms of trying to explain the complexity of everything,” said Adele Taylor, executive director of resources at the Royal Borough of Windsor and Maidenhead and one of the speakers on the MOTB finance panel.

Taylor highlighted the use of private sector reporting standards to determine local government accounting rules, and suggested that there had been a number of “unintended consequences” as a result. She suggested that extending the override for another set period could be seen as “kicking the can down the road”.

Alison Scott, shared director of finance at Three Rivers District and Watford Borough council, said that she had some sympathy for the underlying thoughts behind the standard, but had concerns about the volatility in the market caused by “spot valuations”. On balance, she too would prefer the override to be permanent.

Local authorities should be supporting local economies in a recession. If the override lapsed, we could be cutting services in a recession.

Huge valuation costs

“I can imagine that our auditors will be requiring valuation certificates. There are huge costs involved – it’s tens of thousands of pounds per year that you have to spend on valuing assets that realistically we are not going to do anything with – because they are service assets that we need to provide services,” said Scott, who is also the president of the Society of District Council Treasurers.

David Green, strategic director at Arlingclose, gave some figures to highlight the volatility issues. He said that Arlingclose’s local authority clients hold about £2bn in relevant pooled funds. In March 2020, as the pandemic hit and markets fell, the funds were 10% under the purchase costs, in March 2021 they were 2% under and in March 2022 they were 5% up.

But because of the override, none of this hit the general fund and there was no direct impact on services or council tax levels.

“We don’t want local authorities cutting services and raising taxes just as the economy dips. We want the opposite – the public sector should be counter cyclical to the private sector. Local authorities should be supporting local economies in a recession. If the override lapsed, we could be cutting services in a recession,” he said.

Both Taylor and Scott highlighted the difficulty in explaining the volatility to elected members, and the temptation for them to want to spend short-term gains on services.

The other speakers at the MOTB session were: Heather Lamont, director of client investments at CCLA Investment Management, and Alex Stanley, relative value strategist at Ardea Investment Management.

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