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    Report Report Document Transcript

    • REPORT Committee CIPFA/LASAAC JOINT COMMITTEE Venue Robert Street Date 25 June 2007 Subject Budget 2007 announcement of move to international financial reporting standards adapted as necessary for the public sector, as it applies to the local government sector. 1 At the April 2007 meeting, the CIPFA/LASSAC Joint Committee approved a report as a first response to the Treasury on the Budget 2007 announcement about the move to international financial reporting standards adapted as necessary for the public sector for the accounts in the wider public sector and whole of government accounts. 2 As instructed by the CIPFA/LASAAC Joint Committee, the Joint Committee’s April report was • put on the CIPFA website in order to keep the local government sector informed of the Budget 2007 announcement and the Joint Committee’s response, with associated publicity • sent to the HM Treasury as the Joint Committee’s proposed way forward pending a further paper (this) to be brought to the June meeting of the CIPFA/LASAAC Joint Committee for consideration • sent to the ASB for information. 3 Following further analysis by the Secretariat a range of options was considered by the Joint Committee at their meeting on 25 June 2007: Option 1 local authorities come under the FReM, instead of having a SORP or other intermediate Code Option 2 the CIPFA/LASAAC Joint Committee directly adopts international financial reporting standards within the SORP TECHNICA/TECH4/MW1839 1
    • Option 3 the CIPFA/LASAAC Joint Committee and the SORP take no action with respect to the Budget 2007 announcement about internationally based financial reporting standards Option 4 local authorities come under the FRAB, instead of having a SORP, and in addition specific local authority guidance with a legislative basis is developed and maintained by the CIPFA/LASAAC Joint Committee (similar to the way in which Monitor undertakes now for NHS Foundation Trusts in England) Option 5 the CIPFA/LASAAC Joint Committee continues to adopt internationally based financial reporting standards within the SORP through the application of UK GAAP, which includes and follows the ASB’s convergence agenda; and in addition ensures that consolidation information, appropriate to the sector, is available for local government for whole of government accounts. 4 The CIPFA/LASAAC Joint Committee agreed the following: (a) To adopt option 5 in the report for 2008/09. This means that for 2008/09 the policy decision announced in the Budget 2007 “6.59 The annual financial statements of government departments and other entities in the public sector are currently prepared using accounting policies based on UK Generally Accepted Accounting Practice. In order to bring benefits in consistency and comparability between financial reports in the global economy and to follow private sector best practice, this Budget announces that from the first year of the CSR period these accounts will be prepared using International Financial Reporting Standards adapted as necessary for the public sector. 6.60 This Budget also announces the Government’s intention that Whole of Government Accounts will now be published for the first time for the 2008-09 financial year. This revised timetable is to allow time to complete alignment of local and central government accounting policies and to enable WGA to be prepared on the new IFRS basis.” may be implemented for local government by the CIPFA/LASAAC Joint Committee continuing to adopt internationally based TECHNICA/TECH4/MW1839 2
    • financial reporting standards within the SORP through the application of UK GAAP which includes and follows the ASB’s convergence agenda; and in addition ensuring that consolidation information, appropriate to the sector, is available for local government for whole of government accounts. (b) The Secretariat will bring forward proposals to the September meeting for the Joint Committee to consider as a basis for consultation on the 2008 SORP. (c) The Secretariat will also bring a substantive paper to the September meeting for the Joint Committee to consider in respect of whole of government accounts issues for 2008/09. (d) The Joint Committee will move to international standards for 2009/10 or as soon as possible thereafter; the method will be dependent on further consideration once the resolution of the externalities identified in options 4 and 5 in the report is known; the Joint Committee will map out a programme for transition for local authorities. A paper on this will be considered at the September meeting. (e) This report and its attachments will be • put on the CIPFA website in order to keep the local government sector informed of the Joint Committee’s work, with associated publicity • sent to HM Treasury, CLG, Scottish Executive, Welsh Assembly Government and Northern Ireland for information on the Joint Committee’s proposed way forward, with the request that if any of these bodies decide to regulate on this matter that the Joint Committee is informed • sent to the ASB for information, and with the request that it be included during their consideration of matters relating to the ASB consultation paper of the International Accounting Standards Board’s Exposure Draft of International Financial Reporting Standard for Small and Medium-sized Entities (SMEs). 5 The following analyses in support of consideration of the options are attached as appendices to this report: Appendix A outline of due process of the local authority SORP Appendix B outline of due process of the FReM TECHNICA/TECH4/MW1839 3
    • Appendix C analysis of the differences between UK GAAP as currently adopted by the SORP and International Financial Reporting Standards, and the likely impact on the SORP Appendix D note on HM Treasury’s work in progress on international financial reporting standards and the PFI Appendix E note on HM Treasury’s work in progress on the disclosure requirements of international financial reporting standards Appendix F outline of significant differences between the SORP and the (draft) internationally based FReM Appendix G whole of government accounts issues. The report attached at Appendix C has been produced for CIPFA by PricewaterhouseCoopers LLP. TECHNICA/TECH4/MW1839 4
    • OPTION 1 Local authorities come under the FReM instead of having a SORP or other intermediate Code 1.1 This option would mean the CIPFA/LASAAC Joint Committee deciding to have no further involvement in the determination and maintenance of proper accounting practice for local authorities. This would, instead, be the responsibility of HM Treasury. 1.2 The process issues that would be required to implement this option would be complex. In England and Wales, the local authority SORP constitutes a ‘proper accounting practice’ under the terms of section 21 (2) of the Local Government Act 2003, through separate regulation in England and Wales. In Scotland, currently the local authority SORP, as a generally recognised public Code, constitutes proper accounting practice under section 12 of the Local Government in Scotland Act 2003. In Northern Ireland, the status and authority of the local authority SORP derive from Article 6 (3) of the Local Government (Northern Ireland) Act 2005 and through the relevant accounts direction issued by the Department of the Environment (Northern Ireland). Therefore, option 1 would require legislative change (by regulation) separately in England, Wales and Scotland, and an accounts direction in Northern Ireland. Consequential legislative changes, e.g. to Accounts and Audit Regulations, would also occur. There would moreover be knock-on implications for certain CIPFA codes, most noticeably the Prudential Code and the BVACOP, both of which make reference to and rely on the proper practices of the SORP. We have had no indication that the government and the devolved administrations would wish to make the legislative changes. These would also be subject to consultation and the normal due process of the central government and devolved administrations. 1.2 Also, in terms of process, the local authority SORP follows the due process of the ASB’s Code of Practice for SORP (statements of recommended practice) preparers. The CIPFA/LASAAC Joint Committee values the contribution that the ASB makes to the SORP’s development through its negative assurance process. This is a valuable contribution to proper accounting practice in the local government sector. 1.3 The approach taken to financial reporting standards within both the current FReM and the draft international FReM is different from that taken within the SORP. The FReM lists the standards by title, and documents any departures from them that have been accepted as appropriate adaptations for the sectors that it covers. In contrast, the local authority SORP incorporates the requirements of each standard, TECHNICA/TECH4/MW1839 5
    • as appropriate to the sector, within its text, as well as listing the standards. There are advantages to each approach. What is certain, however, is that the different approach within the FReM would be a major change of practice for local authorities. Arguably, an investigation into additional costs from the changed legislation would be required. Certainly, major disruption in local government finance is a matter to be avoided and currently there is a sound and accepted system. 1.4 Moreover, the work of the CIPFA/LASAAC Joint Committee in studying, consulting on, and commenting on how complex new financial reporting standards apply to the local authority sector is beneficial to promoting best practice in financial reporting for the sector. This is particularly notable in respect of the new accounting standards for financial instruments, but was also evident in respect of accounting for pension costs and tangible fixed assets. Significant changes have been made over a relatively short time period through the SORP. These have been successfully implemented with the sector through a consultation process. It is also pertinent to note that these standards were all adopted within the SORP in tandem with a consideration of the legislation that determines the calculations required for in-year taxation. All this would be lost without the SORP (unless, of course, this role was taken on by HM Treasury). 1.5 Furthermore, the local authority SORP reconciles a GAAP based income and expenditure account with the charge to taxation, identifying the differences, if any, between the two. This is not a feature of the FReM. For central government departments, the reconciliation is to parliamentary votes, not to taxation. In contrast, the accounts of all Councils have to be reconciled to taxation, an important matter that the FReM does not currently cover. If option 1 is followed then either the FReM would need to be substantively added to, or local authorities would be left without an authoritative code on these matters. The latter would be a negative disruption. It should be noted that the SORP has over the past few years, through conserted effort by the CIPFA Secretariat, the CIPFA/LASAAC Joint Committee and, most of all, by the local authority sector that they serve, become GAAP compliant whilst being fully reconciled to the calculation required for taxation purposes and to the often complex legislative requirements that apply to the sector. The work that has been necessary, by all parties concerned, to achieve this should not be under-estimated. Replacing it would be no small task. 1.6 The SORP also includes the details of various notes to the account that local authorities are required to make by virtue of legislation rather than as a result of financial reporting standards. The CIPFA/LASAAC Joint Committee has in the past queried the need for all these notes, but they exist and they are detailed in the SORP, TECHNICA/TECH4/MW1839 6
    • which is helpful to local authorities in implementing the requirements. Again, these do not feature in the current FReM. 1.7 It is questionable whether it would be practical to implement option 1 for 2008/09, in terms of the legislative changes that would be required, the parliamentary (England and Scotland) and Assembly (Wales and Northern Ireland) time this would need, the necessary consultation with local authorities, and any consequential impact on taxation and/or costs of the change. Under option 1, these would all be matters for central government and devolved administrations to determine and to manage, and not for the Joint Committee. 1.8 Appendices A and B outline the due processes of the local authority SORP and the FReM respectively. TECHNICA/TECH4/MW1839 7
    • OPTION 2 The CIPFA/LASAAC Joint Committee directly adopts international financial reporting standards within the SORP 2.1 An initial view might be taken that because of the ASB’s convergence policy to date, there are now relatively few and discrete differences between internationally based financial reporting standards and UK GAAP and that, therefore, option 2 would be practical and achievable in 2008/09. 2.2 However, whilst the areas are few and discreet the differences are considerable, in terms of both the detail of the standards and their appropriate due process. 2.3 An analysis has been undertaken of differences between current UK based financial reporting standards and internationally based financial reporting standards, as they would be likely to impact on the SORP This analysis has been produced for CIPFA by PricewaterhouseCoopers LLP (see Appendix C). This shows that in addition to the obvious candidates of PFI and disclosure, on which the Treasury is itself undertaking further work (see appendices D and E), there are other, detailed issues in respect of measurement and definition that would impact on current SORP requirements and therefore on local authorities. 2.4 The private sector had two years to prepare for the data changes required as a result of the introduction of international financial reporting standards and, even then, there have been unexpected impacts on key figures in the accounts such as profits before taxation. The move to IFRS proved to be a considerable challenge for the corporate world, with many companies finding the conversion process more complicated and resource intensive than originally anticipated. For any entity or company, changing to IFRS is a complex task and groups that have already converted have had to manage many different demands, including: assessing, measuring and validating the impact of the technical changes on the financial statements; confirming the consequent data requirements (including the systems and process changes needed); and education of the external environment and/or the bodies that consider its financial reports. It is likely that parallel issues would apply for local government. Sufficient lead-in time is essential to facilitate the smooth introduction and implementation of policy initiatives. It would be challenging but technically feasible, given sufficient Secretariat resource, to amend the text of the SORP to be consistent with internationally based financial reporting standards: but the consequences for local government and local government taxation could be considerable and unpredictable. TECHNICA/TECH4/MW1839 8
    • 2.5 The PricewaterhouseCoopers LLP report, attached at Appendix C, considers the potential impact of IFRSs on the SORP on a standard by standard basis. There will be very few parts of the SORP that will remain completely unaffected by convergence. However, the report highlights that the following areas would have a significant impact for financial reporting in local authorities if the SORP moved to IFRS: • leases • segmental reporting • PFI • disclosure requirements. The report in Appendix C demonstrates that there are numerous other areas where there are differences between international financial reporting standards and IFRS that would need to be considered in any convergence. 2.6 If the SORP were to move to international financial reporting standards (IFRSs) rather than UK standards (FRSs), then the current due process of the SORP would no longer be appropriate since the ASB would have no negative assurance role. Nor does a ‘SORP’ have meaning internationally. As noted under option 4, below, the future of SORPs within the ASB’s convergence agenda is yet to be determined. Many of the process issues that would apply to option 1 would also apply to option 2 if this was implemented immediately and before the ASB’s future role (if any) for SORP and/or public sector financial reporting generally is determined. TECHNICA/TECH4/MW1839 9
    • OPTION 3 The CIPFA/LASAAC Joint Committee and the SORP take no action with respect to the Budget 2007 announcement about internationally based financial reporting standards 3.1 This option is only included so as to discuss the full range of options within a single report. The CIPFA/LASAAC Joint Committee already ruled this option out, at its meeting in April. 3.2 Moreover, this option would be impractical and unsustainable for two reasons • to refuse to take this forward in the face of the clear policy in the 2007 Budget would be to invite and make inevitable regulatory intervention to over-ride the decision • the SORP is already changing for the international convergence strategy of the ASB. TECHNICA/TECH4/MW1839 10
    • OPTION 4 Local authorities come under the FRAB, instead of having a SORP, and in addition specific local authority guidance with a legislative basis is developed and maintained by the CIPFA/LASAAC Joint Committee (similar to the way in which Monitor undertakes now for NHS Foundation Trusts in England) 4.1 The analysis for option 4 is similar to option 1, but with the additional complication that a new legislative basis and due process for the guidance to be prepared by the CIPFA/LASAAC Joint Committee would be required. The consultation process for that guidance would also need to be determined. The due process would be under the control of HM Treasury as Secretariat to FRAB, and FRAB, rather than to the ASB’s Code of Practice on SORPs and through the ASB’s negative assurance process. The format of the guidance would also need to be decided, and in particular its relationship to the detail included within international financial reporting standards. 4.2 It is questionable whether it would be practical to implement option 4 for 2008/09, for the reasons given above, under option 1, and the additional complexity of process described above. 4.3 It may however be necessary and/or desirable to give further consideration to this option in the medium term. This will depend on future developments in financial reporting standard setting on two fronts. The first is the question of what will happen to SORPs in the UK under the ASB’s convergence agenda. This is not yet known and will impact on all current SORP preparers, which include the banking, RSL, and charity sectors. The second is whether or not the financial reporting standards used by central government become more closely integrated with the processes of the financial standard setters internationally. This also is not yet known. A more informed judgement on option 4 will be possible for the CIPFA/LASAAC Joint Committee, and for the local authority sector, once these two questions are resolved. The first is a matter for the standard setters in consultation with their constituents and stakeholders to determine. The second is fundamentally for central government to determine. TECHNICA/TECH4/MW1839 11
    • OPTION 5 The CIPFA/LASAAC Joint Committee continues to adopt internationally based financial reporting standards within the SORP through the application of UK GAAP, which includes and follows the ASB’s convergence agenda; and in addition ensures that consolidation information, appropriate to the sector, is available for local government for whole of government accounts 5.1 It is suggested that the policy decision announced in the Budget 2007 “6.59 The annual financial statements of government departments and other entities in the public sector are currently prepared using accounting policies based on UK Generally Accepted Accounting Practice. In order to bring benefits in consistency and comparability between financial reports in the global economy and to follow private sector best practice, this Budget announces that from the first year of the CSR period these accounts will be prepared using International Financial Reporting Standards adapted as necessary for the public sector. 6.61 This Budget also announces the Government’s intention that Whole of Government Accounts will now be published for the first time for the 2008-09 financial year. This revised timetable is to allow time to complete alignment of local and central government accounting policies and to enable WGA to be prepared on the new IFRS basis.” may be implemented for local government by the CIPFA/LASAAC Joint Committee continuing to adopt internationally based financial reporting standards within the SORP through the application of UK GAAP which includes and follows the ASB’s convergence agenda; and in addition ensuring that consolidation information, appropriate to the sector, is available for local government for whole of government accounts. This is in reliance on the key phrase ‘adapted as necessary for the public sector’ in paragraph 6.59 of Budget 2007, as it applies to local government. 5.2 This option would permit the continuation of a long established due process that is well accepted by local authorities throughout the UK. The due process is detailed in Appendix A to this report. TECHNICA/TECH4/MW1839 12
    • 5.3 Option 5 would avoid the regulatory and/or other disruption that has been identified for the other options, none of which would be likely in any event to be completed in time for the 2008/09 accounts. 5.4 As detailed in Appendices F and G the results of option 5 are likely to be materially similar to international financial reporting standards (whilst different in points of detail that would need a lead time to accommodate, as detailed in Appendix C). This is because of the ASB’s convergence agenda that the SORP has been diligently following, including detailed consideration and incorporation as appropriate for the sector of the new accounting standards for financial instruments. 5.5 Under option 5, the Joint Committee would work with the Treasury to ensure that consolidation information, appropriate to the sector, is available in 2008/09 for local government whole of government accounts. 5.6 Option 5 would result, over a short time frame to be determined by ASB, in full convergence for the local government sector with international financial reporting standards. This would be undertaken in consultation with the sector through the normal due process of the SORP. No equivalent for this consultation process currently exists for the FReM (see Appendix B). 5.7 Option 5 would allow consideration in the medium term of the long term future of the due process for the development and maintenance of proper accounting standards for local government. As noted under option 4, this will depend on future developments in financial reporting standard setting on two fronts. 5.8 The first is the question of what will happen to SORPs in the UK under the ASB’s convergence agenda. This is not yet known and will impact on all current SORP preparers, which include the banking, RSL, and charity sectors. It will also need to reflect wider ASB views on convergence, particularly in terms of the IASB project to develop an IFRS for SMEs, as this could be applied to any entity, possibly even larger entities, that do not meet the IASB’s definition of being publicly accountable. In this context, it should be noted that the IASB define ‘publicly accountable’ as entities that are either listed or hold assets in a fiduciary capacity. 5.9 The second is whether or not the financial reporting standards used by central government become more closely integrated with the processes of the financial standard setters internationally. This also is not yet known. TECHNICA/TECH4/MW1839 13
    • 5.10 A more informed judgement will be possible for the CIPFA/LASAAC Joint Committee and for the local authority sector, for the longer term, once these two questions are resolved. The first is a matter for the standard setters in consultation with their constituents and stakeholders to determine. The second is fundamentally for central government to determine. 5.11 If option 5 is the way forward that is determined by the Joint Committee, and unless there is a positive indication by either the government or a devolved administration to regulate to the contrary, then the regulators, audit bodies and other authoritative commentators on accounting practice in local government in those areas of the UK where no such regulatory intention has been announced are urged to publish and pronounce only guidance for practitioners and auditors on relevant matters that conforms with option 5. TECHNICA/TECH4/MW1839 14
    • APPENDIX A Outline of due process of the local authority SORP A.1 The Code of Practice on Local Authority Accounting in the United Kingdom (the SORP) is developed by the CIPFA/LASAAC Joint Committee. The CIPFA/LASAAC Joint Committee, a standing committee of CIPFA and LASAAC, has confirmed that it shares the ASB’s aim of advancing and maintaining standards of financial reporting in the public interest and has been recognised by the ASB for the purpose of issuing SORPs. As a condition of recognition, the Joint Committee has agreed to follow the ASB’s Code of Practice for bodies recognised for issuing SORPs. A.2 In England and Wales, the local authority SORP constitutes a ‘proper accounting practice’ under the terms of section 21 (2) of the Local Government Act 2003. In Scotland, currently the local authority SORP, as a generally recognised public Code, constitutes proper accounting practice under section 12 of the Local Government in Scotland Act 2003. In Northern Ireland, the status and authority of the local authority SORP derive from Article 6 (3) of the Local Government (Northern Ireland) Act 2005 and through the relevant accounts direction issued by the Department of the Environment (Northern Ireland). A.3 The CIPFA/LASAAC Joint Committee reviews the SORP annually and where appropriate amends it. The SORP has been amended annually in the recent past for changes in the UK financial reporting standards and/or legislation affecting local authorities. A.4 The annual timetable is shown below, in this example for the 2007 SORP: June 2006: CIPFA/LASAAC reviews changes required to the SORP in outline principle July/Aug 2006: Detailed proposals are developed by the CIPFA/LASAAC Secretariat September 2006: CIPFA /LASAAC considers detailed proposals for the invitation to comment on changes for the SORP September/ Consideration by ASB CAPE and ASB of the October 2006: invitation to comment and Exposure Draft of the SORP TECHNICA/TECH4/MW1839 15
    • November 2006: Publication of invitation to comment, for the 3 months consultation period required by the ASB Code of Practice for SORP preparers. February/ Consultation closes, and responses are analysed by March 2007: CIPFA/LASAAC Secretariat April 2007: CIPFA/LASAAC considers the responses received to the consultation and proposes final changes for the SORP May/June 2007: Negative assurance consideration by ASB CAPE and ASB June/July 2007: Publication of the SORP that applies to 2007/08. In addition, the changes are approved separately by CIPFA, through the CIPFA Public Finance and Management Board, and by LASAAC. TECHNICA/TECH4/MW1839 16
    • APPENDIX B Outline of due process of the FReM B.1 The Government Financial Reporting Manual (FReM) sets out the accounting standards for central government, executive agencies, non-departmental public bodies and trading funds across the UK. The accounting manuals used by the NHS Trusts and Foundation Trusts are based on the FReM, and all the manuals are approved by the Financial Reporting Advisory Board (FRAB). The FRAB is an independent body fulfilling the statutory role as the ‘group of persons who appear to the Treasury to be appropriate to advise on financial reporting principles and standards’ for government. FRAB acts as an independent element in the process of setting accounting standards for central government and to help to ensure that any adaptations of, or departures from, the generally accepted accounting practice are appropriate. The Board also advises the Treasury on the implementation of accounting policies specific to whole of government accounts. B.2 The FReM can be, and is, updated regularly throughout the year. Proposals for change are taken to FRAB following a consultation of a minimum of six weeks with the Treasury, the devolved administrations and a consultation network in departments, NDPBs and trading funds. B.3 For new UK financial reporting standards, Treasury guidance for the preparation of reports to FRAB states ‘The (ASB) convergence project should mean that compliance with GAAP equates to compliance with IFRSs).’ B.4 The Treasury began the preparation of an IFRS-based FReM in May 2006. Following a further consultation period, it is scheduled to be published in December 2007. B.5 The current FreM is based on UK GAAP and it is intended that the shadow internationally based FReM will replace this for the 2008/09 accounts, for these entities covered by it. TECHNICA/TECH4/MW1839 17
    • APPENDIX D Note on HM Treasury’s work in progress on international financial reporting standards and the PFI D.1 The Treasury reports that this work is not yet available but should be available in time for CIPFA/LASAAC’s September meeting, when the Joint Committee normally considers detailed proposals for consultation on changes to the following year’s SORP. TECHNICA/TECH4/MW1839 18
    • APPENDIX E Note on HM Treasury’s work in progress on the disclosure requirements of international financial reporting standards E.1 The working group examining this issue for the entities covered by the FReM has met. The CIPFA/LASAAC Joint Committee is not represented on this group (and is not covered by the FReM), but the results of the group’s work are shared by the Treasury with the Joint Committee. E.2 The Treasury has advised the Joint Committee that the working group has concluded that the disclosure requirements of each international financial reporting standard should apply in full to entities covered by the FReM, but that some simplifications will occur in practice because those entities are, by their nature, unlikely to have assets/liabilities/transactions that would fall under many of the more complex standards. For example, the civil service pension is accounted for ‘FRS17’ type issues at the level of the pension scheme, rather than within the accounts of the individual entities. E. 3 It is not likely that this would be the case in local government, who are in the main multi-purpose, tax raising entities with a wide ranging balance sheet and already complex legislatively required disclosures. A separate study (and hopefully simplification) of local authority disclosures would be beneficial. TECHNICA/TECH4/MW1839 19
    • Appendix F Outline of significant differences between the SORP and the draft internationally based FReM F.1 The draft internationally based FReM is not yet available for circulation to CIPFA/LASAAC members. However, various preparatory papers have been discussed at FRAB, on which CIPFA has observer status. F.2 Currently, no major adaptations or modifications to international financial reporting standards for the internationally based FReM have been sanctioned by FRAB. F.3 The Treasury is currently developing the paper on PFI under international financial reporting standards, which will be a major issue, and this has not yet been considered by FRAB. F.4 The Treasury hopes that the paper on PFI will be available before the September meeting of the CIPFA/LASAAC Joint Committee. F.5 Currently, Appendix C to this report may be taken as information about differences between current UK based financial reporting standards and internationally based reporting standards, as they would be likely to impact on the SORP, and Appendix G for information about whole of government accounts issues. Any adaptations or modifications to international financial reporting standards for the FReM, and the forthcoming paper on PFI will of course moderate those conclusions. TECHNICA/TECH4/MW1839 20
    • Appendix G Whole of government accounts issues Infrastructure G.1 Infrastructure has previously been identified by the Treasury as one of the three differences of accounting policy that needed to be integrated between central and local government for whole of government accounts purposes. NB 1 - This was under UK based financial reporting standards NB 2 - The other two differences, which were issues that pertained to UK GAAP (group accounts and the revaluation reserve) have already been amended within the SORP. G.2 The difference in accounting policy for infrastructure between the (UK based) FReM and the SORP is an issue purely of policy and not of GAAP. The FReM requires a current valuation for infrastructure assets and the SORP requires an historical cost basis for infrastructure assets. Either is consistent with UK GAAP but clearly this results in an issue to be resolved for whole of government accounts purposes. G.3 In 2006, the DfT and Treasury jointly commissioned CIPFA to do some research work into this. A draft report is due to be published in early July. Progress continues to be separately reported to the Joint Committee. Current whole of government accounts issues for local government G.4 At the meeting of the CIPFA/LASAAC Joint Committee in April 2007, the Joint Committee re-affirmed its support for whole of government accounts. The meeting in June also resolved that: “The CIPFA/LASAAC Joint Committee will work through the due process of the SORP, and in liaison with HM Treasury, to ensure that consolidation information, appropriate for the sector is available for local government for whole of government accounts.” The Treasury has not previously approached the CIPFA/LASAAC Joint Committee in this way and this new development should offer an additional useful avenue for the consideration of whole of government accounts issues. G.5 A substantive paper on this will be brought to the September meeting of the Joint Committee. TECHNICA/TECH4/MW1839 21
    • Internationally based FReM and whole of government accounts issues G.6 Without prejudice to the development of the FReM or the SORP, it seems likely that a key difference for the public sector generally between UK GAAP and international standards will be in respect of the recognition and measurement for the balance sheet of both leases and PFI developments. The Treasury guidance for the proposed internationally based FReM for leases and for PFI is not yet available. G.7 Whilst (see Appendix C) there are other differences between the SORP (which is consistent with UK financial reporting standards including the convergence agenda of the ASB to date) and international financial reporting standards, at this stage there do not appear to be any other differences that will lead to difference of result that will be material for whole of government accounts purposes. TECHNICA/TECH4/MW1839 22
    • Appendix C Click here to access Appendix C: http://www.cipfa.org.uk/pt/download/lasaac_pwc25jun07.pdf TECHNICA/TECH4/MW1839 23