Simplifying measurement for operational property, plant and equipment using indexation.
Question 1. Do you agree with the proposal that, for local authorities in England only and for the 2023/24 and 2024/25 reporting periods, the application of the requirements of the Code should be amended so that asset values in the financial statements may be based on the most recent valuation which has been subject to audit, adjusted for depreciation, and updated by a standard centrally determined index?
If not, why not? Please provide reasons for your view.
The application of a centrally determined methodology for these assets and for this period is to be welcomed. The aim should be to reduce or eliminate additional audit work on challenging valuations and methodology, additional reconciliations. and eliminate the need to produce new valuations using a different methodology. The proposal here is a step in the right direction but does not go far enough and is unlikely to have sufficient impact. It is clear that the intention is to make the adoption of the central methodology optional rather than mandatory. As such it opens the door to different interpretations by auditors and accounts preparers. As a result auditors may feel the need for justification of decisions and approach taken by accounts preparers, and consideration of alternatives, potentially resulting in considerably more work all round. If the methodology were to be mandated then the scope for different interpretation would be eliminated and the audit work could concentrate solely on matters of fact (such as calculations), resulting in a simplification of approach and a significant reduction in time taken.
Question 2. Do you consider that this would have a beneficial effect (a net reduction) in the overall workload for preparers, having regard both to additional work that would be required to implement the change, and anticipated reductions in requirements to provide additional evidence to auditors and to resolve auditor queries?
If not, why not? Please provide reasons for your view.
Question 3. Do you consider that this would have a beneficial effect (a net reduction) in the overall workload for auditors?
If not, why not? Please provide reasons for your view.
Also see answer to question 1. In theory, this change could have a beneficial effect by enabling a net reduction in workload and reducing the amount of work on valuations overall over the two years, with preparers being able to undertake a simpler valuation process and auditors having their work reduced to just checking agreed calculations. However, because adoption is optional rather than mandatory, it is less likely to have a positive impact. It is possible that if an auditor believes the adoption and methodology should be challenged then any benefits will be much reduced and may even be eliminated and in fact there may be additional work for both accounts preparers and auditors.
Question 4. Who do you consider would be an appropriate authoritative body to determine the indices to be applied?
If CIPFA / LASAAC does not see it as its role to nominate a body for this, then, as this is a short-term measure, it would seem to be appropriate for DLUHC working with the Financial Reporting Council (FRC) as system leader to nominate the appropriate authoritative body.
Question 5. By what date would you need this information to be able to effectively implement an indexation approach?
This is a question for individual local authorities to answer. However, we have heard concerns from some local authorities that it is already very late for this to be implemented for 2023/24, and possibly too late.
Question 6. Do you have any other comments on this proposal?
No further comments.
Reduced pensions disclosures
Question 7. Do you agree with the proposal that, for local authorities in England only and for the 2023/24 and 2024/25 reporting periods, the application of the requirements of the Code should be amended so that reduced pension disclosures are required, as outlined in the exposure draft?
If not, why not? Please provide reasons for your view, noting any specific pension disclosures for which you consider this approach to be problematic.
We agree with this proposal.
Question 8. Do you consider that this would have a beneficial effect (a net reduction) in the overall workload for preparers, having regard both to additional work that would be required to implement the change, and anticipated reductions in requirements to provide additional evidence to auditors and to resolve auditor queries?
If not, why not? Please provide reasons for your view.
We expect that this will have a beneficial effect for accounts preparers but suggest that notice should be taken of responses to this question from individual local authorities.
Question 9. Do you consider that this would have a beneficial effect (a net reduction) in the overall workload for auditors?
If not, why not? Please provide reasons for your view?
We expect that this will have a beneficial effect for auditors but suggest that notice should be taken of responses to this question from individual local authorities.
Question 10. Do you have any other comments on this proposal?
No further comments.
Other matters
Question 11. Do you have any other comments on how the short-term proposals might be implemented?
For example, having considered the proposal in this ITC, to the extent that you are in favour of them, do you agree or disagree that this is an appropriate matter for specification in the Code, which is a matter for CIPFA/LASAAC to determine under its usual process?
We note that CIPFA / LASAAC has had problems formulating these proposals as is outlined in Annex 2 of the consultation. We also note the comment that some members of CIPFA / LASAAC suggested that “if normal accounting practices are to be suspended with an adverse effect on the quality of financial reporting, it would be better for government to specify the form of accounting through a statutory instrument.” Given the problems CIPFA / LASAAC has had with formulating these proposals and the need for a pragmatic solution and a creative response to the local audit crisis, it may be that it would be better if the Government should specify the requirements as is suggested here, providing it can be done quickly.
It is noteworthy that the temporary solution to the issue of accounting for infrastructure assets was only put in place by use of a statutory override and that this followed earlier unsuccessful attempts to find a solution by CIPFA / LASAAC.