Blackpool Council
Conversion to International Financial Reporting
Standards
Briefing for the Audit Committee
13 October 2009
Purpose of this briefing
This paper seeks to update the Audit Committee on the implications for Local
Government of the need to comply with International Financial Reporting Standards
(IFRS), and on Local Government’s plans to ensure appropriate compliance with the
required timescale.
Background
What does IFRS mean?
IFRS have been developed by the International Accounting Standards Board.
Compliance with IFRS ensures that financial statements are ‘fairly presented’.
Guidance to Local Government Organisations – current position
Accounts of central government departments and entities in the wider public sector
are to be produced using a tailored form of IFRS. Government is currently
determining exactly how IFRS will be implemented in the Local Government and
certain aspects of the guidance are currently under consideration. This briefing
therefore considers, in the light of current guidance, the issues that the Local
Government is likely to face as it manages the transition to IFRS.
Why IFRS is being applied to Local Government Bodies
In recent years there has been a generally strong convergence on accounting standards
and in the narrative reporting requirements of the accounts of bodies in the public and
private sectors. The Treasury has now determined that the accounts of Central
Government Bodies will be based on IFRS from 2009/10 and regulators at the
Department of Communities and Local Government have determined that Local
Government Organisations should follow suit.
In principle, the adoption of IFRS, which comprises a set of global standards and
interpretations, should assist in the comparison of organisations’ financial
performance across sectors and geographical boundaries. The adoption of IFRS may
enable Local Government Organisations more easily to raise capital, as lenders will
be familiar with financial statements prepared under IFRS.
Baker Tilly’s role at Blackpool Council
The Council has engaged Baker Tilly to provide support for the conversion of its
accounts from the current UK GAAP-based reporting to International Financial
Reporting Standards (IFRS). Baker Tilly is the external auditor at a number of Local
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Government Organisations and has undertaken many IFRS conversion assignments at
listed companies since the introduction of IFRS in the private sector two years ago.
Timetable
IFRS will apply from the 2009/10 financial year. Accounts for 2008/09 will be
prepared under existing UK GAAP (‘Generally Accepted Accounting Practice’). The
Local Government’s preparations for IFRS need to start now, however, because:

The comparative financial information in the 2009/10 accounts in respect of
2008/09 will need to be IFRS compliant.

In preparation for this, the Department of Communities and Local
Governments will require Local Government Bodies to restate their 2008/09
accounts in IFRS form in the autumn of 2009. Please note that guidance on
this has yet to be finalised.

It may take some time and resource to be able to calculate and restate certain
items in the Local Government’s accounts. Early preparation is therefore
sensible and necessary.
Key Technical Issues
1.
IAS 17: Leases
This International Accounting Standard requires entities to determine whether an
arrangement is, or contains, a lease.
An arrangement is, or contains, a lease when:

Its fulfilment depends on a specific asset/assets, and

The arrangement conveys a right to use the asset.
Impact
IAS 17 has a broader definition of what constitutes a finance lease than UK GAAP.
More leases, which are currently shown as operating leases, are likely to be classified
as financing leases, appear as assets on Local Government Bodies’ balance sheets and
thereby to be subject to capital charges.
This is likely to impact on Blackpool Council, which has a reasonable number of
operating leases.
Definition of a finance lease
A finance lease is one that transfers substantially all the risks and rewards incidental
to ownership of an asset.
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2.
IAS 16: Non-Current Assets
This IAS is similar to FRS 15, and major changes are not expected. There are,
however, some differences compared with UK GAAP with regard to asset valuations:

Borrowing costs must be capitalised as a directly attributable cost

Costs of regular inspections and overhauls can be capitalised under IFRS

Local Governments must review useful lives and residual values annually

Impairment losses on previously revalued assets can only be debited to
reserves to the extent that they reverse an earlier surplus on the same asset

Whereas separability is optional under FRS 15, IAS 16 states that ‘each part of
an item of property, plant and equipment with a cost that is significant in
relation to the total cost of the item shall be depreciated separately’. This may
include, for example, the lifts in a building that a local government
organisation owns. If the lifts have a significant cost and significantly different
useful economic life from the building, they will need to be separately
identified on the organisation’s asset register and depreciated separately.
3.
IAS 19: Employee Benefits
IAS 19 introduces the requirement that organisations must provide for the full amount
of holiday accrued but not yet taken at each financial year end. This will require
Council to set up a holiday pay accrual, which will essentially be based on the number
of holiday days earned but not yet taken at the period end multiplied by the daily rate
of pay.
Other points to note:
4.

It will be very important that the local government has in place systems to
identify how much annual leave each of its staff carry forward at the end of
the financial year.

The required accrual may not be material to Local Government’s accounts.
The Council will, however, need to undertake robust analysis to demonstrate
this.

The holiday pay accrual could be a fairly volatile number depending on the
amount of carry over allowed and actually taken.
Disclosures
Although the financial reporting guidance has not yet been finalised, a darft
accounting code has been out for consultation. We are able to assess the likely impact
of IFRS on the Council’s accounts.
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Special disclosures will be required in the first IFRS accounts to reconcile revised
figures prepared under IFRS as at 31 March 2009 with those that the Council
approved on 29 September under UK GAAP.
Other key issues
Resources
The impact of the transition to IFRS on resources is potentially significant. The
Council has therefore decided to engage Baker Tilly to assess the likely impact of
IFRS on the Council’s accounts, to project manage its arrangements for preparing
restated figures, including its data sources, to provide training as appropriate, and to
help restate its balance sheet as at 31 March 2009.
Data
The Council will need to be able to generate and collate data that is currently not
required under UK GAAP: leases and the amounts of holiday carried forward are
examples of this. Since not all the data that will be used in the conversion to IFRS will
be generated by the Finance team, it is important that all departments which hold, or
will be required to generate data are aware of the requirements of IFRS.
In addition, much of the data that will be used in the conversion to IFRS is being, or
should be, prepared now. If the Council identifies its data requirements now, it can
therefore capture the data on a ‘real time’ basis. We will assist the Council with this
process.
Action Plan
The Council has recognised that, whilst IFRS will not mean complete change to its
accounts, significant work will be required to assess the impact where changes are
required.
An outline of the IFRS action plan, including an indicative timetable, is shown
overleaf. There is currently some uncertainty over the timings because final guidance
on the application of IFRS to Local Government has yet to be issued.
Baker Tilly Team
The core team comprises:
Dave Buxton, Client Partner
david.buxton@bakertilly.co.uk
Keith Ward, Audit Director
keith.ward@bakertilly.co.uk
Richard Stonier, Senior Manager
richard.stonier@bakertilly.co.uk
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Action Plan
Aug to Sept 2009
Oct to Dec 2009
Jan to March 2010
INITIAL PLANNING AND IMPACT ASSESSMENT
 Initial planning meeting with Finance team
 Prepare briefing for Audit Committee
 Baker Tilly to undertake high level assessment of impact of IFRS and prepare a
diagnostic report that
o Identifies main differences from UK GAAP
o Sets out high level decisions that need to be taken
o Advises on conversion strategy
Baker Tilly to:
 Review detailed financial information
 Identify data/information gaps and work required to fill them
 Quantify main GAAP differences
 Define where changes to accounting policies are required. NB It is for the Council’s
Board to set the revised accounting policies
 Ongoing liaison with external auditors and reporting to the Audit Committee
Baker Tilly to provide training, obtain missing information, calculate adjustments and create
audit trail for the restated 2009/10 accounts
 Set up restated 2009/10 financial statements template, including revised accounting
policies
 Define changes needed to internal accounting systems to facilitate future reporting
 Ongoing liaison with external auditors and reporting to the Audit Committee
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