5
AUDIT AND RISK MANAGEMENT COMMITTEE
Meeting Date
20 January 2009
Title of Report
2008/09 Statement of Recommended Practice and International
Financial Reporting Standards - Update Report
Report Reference
REP141
Portfolio
Performance
Portfolio Holder
Cllr Punt Tel - 07765 660143
Report Author and Tel No
David Ellis (01502) 523664
Is the report Open or Exempt?
Open
Key Decision?
No
MATTER FOR DECISION
To receive an update on the preparations for the 2008/09 Statement of Recommended Practice
(SORP) and International Financial Reporting Standards (IFRS).
EXTERNAL CONSULTATIONS HELD
None
OTHER OPTIONS CONSIDERED AND REJECTED
None
STRATEGIC DIRECTION
Improve Use of Resources and Performance
STRATEGIC IMPLICATIONS
Financial, Value for Money,
Asset and Risk Management
Yes – The SORP provides the framework for reporting financial
reporting to stakeholders. Preparations for IFRS may have a
financial impact if systems require amendments or if additional
valuation work is required.
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Legal, Human Rights, Equality
and Diversity
Yes – Local Authorities are required under section 21(2) of the
Local Government Act 2003 to comply with “proper accounting
practice”, including SORP and all relevant Accounting
Standards, when preparing their Statement of Accounts.
Workforce Planning
Yes – Preparation for IFRS will have resource implications for
staff, processes and systems.
Community Cohesion,
Community Safety and Access
No
Environmental
No
Project Management
Yes – The preparation for IFRS compliance will require a project
management approach involving a number of services including
finance, estates and valuation, ICT and HR.
ADDITIONAL INFORMATION
1.
Background and Introduction
1.1
The Local Authority Statement of Recommended Practice (SORP), updated annually by the
Chartered Institute of Public Finance and Accountancy (CIPFA), defines the key principles
and standards to be adopted by local authorities when preparing their annual Statement of
Accounts.
1.2
This briefing report provides members with an update on the preparations for the SORP
changes for the 2008/09 accounts and the impact of International Financial Reporting
Standards (IFRS) on the Authority’s accounts, resources and systems.
2.
SORP Changes for 2008/09
2.1
The main changes for 2008/09 cover Governance issues, Cash Flow Statement, Capital
Accounting and Pensions. Officers are currently awaiting the release of the SORP Guidance
Notes in order to obtain clarification on some of the technical changes outlined in the main
SORP document. The Guidance Notes are expected during January 2009.
2.2
The main areas where clarification is required are the amendments to the “Authorised for
Issue date” (the date up to which it is reasonable to make adjustments to the accounts) and
the changes to the guidance on the revaluation of fixed assets at the point of disposal.
2.3
Arrangements will be put in place to address these changes, once the detailed guidance is
available, including liasing (via Suffolk County Council) with the Pension Fund actuaries on
the information required for the enhanced Pension disclosure notes.
3.
IFRS Preparations
3.1
IFRS will become “live” for local authorities on 1 April 2010, but as there is a requirement to
include prior-year comparator data for 2009/10 in the 2010/11 accounts, the “transition date”
is 1 April 2009, less than three months away. A summary timetable of the key stages is set
out below:
IFRS Transition
Comparatives
Full Disclosure
Date
Required Date
Date
Today
01/04/09
31/03/10
31/03/11
Prepare Code
Preparation
Implementation
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3.2
As outlined in report REP74 in October 2008, IFRS is an internationally recognised framework
of accounting standards and guidance that will supersede the current UK accounting
framework. The whole of the Public Sector will need to comply with these new international
standards including Central Government and NHS from 2009/10 and Local Government from
2010/11. A draft IFRS Code of Practice is likely to be published in Autumn 2009 after a
consultation period, and members will need to consider setting budgets on an IFRS basis for
then 2010/11 financial year.
3.3
Many of the new standards will have only a minor impact on local authority accounts, but
others will potentially have a significant impact. It is important that preparation for the more
significant accounting standards starts early, in order to minimise any problems in the
implementation of the changes.
4.
Progress to Date
4.1
The Suffolk Chief Accountant Network (SCAN) have been meeting on a regular basis to coordinate IFRS preparations across all the Suffolk local authorities, and have reviewed all new
International Standards and assessed which ones will likely have a major impact. A summary
of this initial impact assessment is shown at appendix A.
4.2
The proposed action plan for IFRS will adopt the following approach for each of the three
categories set out below. Appendix B contains the Gap Analysis sheets completed so far,
outlining the potential impact on people, processes and systems, and the actions required to
address the significant risk areas.
4.2.1
More Significant Standards – A “Gap Analysis” is to be completed for each Standard by 31
January 2009, with a Project Plan established and Project Team in place by 31 March 2009.
The Project plan will identify the key risks, together with a timetable for implementation,
monitoring arrangements, and anticipated resources and training required. Each project will
have a nominated responsible officer, and all Project Plans will be signed-off by Strategic
Management Team. Progress statements will be reported to the Audit & Risk Management
Committee.
4.2.2
Less Significant Standards – A “Gap Analysis” is to be completed for each Standard by 31
March 2009, with Project Plan and appropriate Project Team in place by 30 September 2009.
Governance arrangements will be identical to that outlined above, albeit it is expected that
just one Project Team will be required for the group of standards listed.
4.2.3
Standards with Little or No Impact – A “Gap Analysis” is to be completed for each
Standard by 31 March 2009, however there is unlikely to be any significant work arising from
these standards. Any areas requiring action will be project-managed along with the less
significant standards, and members updated on progress where relevant.
5.
Conclusions
5.1
IFRS is likely to be a challenge for many public sector organisations. The implications are
complex and wide ranging. IFRS is not only a technical accounting issue for the finance team,
the impact of the changes will expand to encompass many areas of the Council such as the
setting and measurement of performance targets, budgeting and forecasting - as well as
financial reporting. Process and systems changes are inevitable.
5.2
Further changes to codes of practice will arise following CIPFA’s consultation “Back to
Basics”, which seeks suggestions from practitioners on how financial statements could be
better presented to reduce any additional workload arising from IFRS. A number of proposed
changes have been recommended by CIPFA in its consultation on the SORP for 2009/10,
including changes to the way Council Tax and Business Rates be accounted for.
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REASONS FOR RECOMMENDATION
The SORP defines the format and processes supporting the production of the annual Statement of
Accounts. Compliance with International Financial Reporting Standards (IFRS) will be a significant
future demand on the authority. This briefing report provides an early update on the preparations so
far, and the outline timetable proposed for implementation of the project work, with particular focus
on those areas identified as high impact.
RECOMMENDATION TO CABINET
1. That the update on the 2008/09 Statement of Recommended Practice (SORP) and International
Financial Reporting Standards (IFRS) issues be noted.
2. That the approach to IFRS outlined in the report be endorsed.
3. That updates on implementation be brought to the Audit & Risk Management Committee as
appropriate.
APPENDICES
Appendix A
Assessed Impact of IFRS changes
Appendix B
IFRS Gap Analysis sheets – current position
BACKGROUND PAPERS
Date
Type
July /
August
2008
CIPFA consultation
papers “Back to
Basics” and
“Telling the Whole
Story”
21
October
2008
REP74 – Briefing
report to Audit &
Risk Management
Committee
N/A
Briefing Paper
Available From
Cipfa:
http://www.cipfa.org.uk/pt/download/Back_to_Basics_Consultation.pdf
Website:
http://www.waveney.gov.uk/My+Council/Committees/Minutes+and+Agendas/agendas_oct08.htm
Pricewaterhousecoopers:
http://www.pwc.co.uk/eng/industries/ifrs_conversion.html
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Appendix A
IFRS Impact Assessment
The Table below sets out the assessed impact of the IFRS changes on the relevant aspects of the
Council’s accounts.
IFRS
Topic
County-wide
Rank
WDC
Rank
More Significant Standards
IAS 17
IAS 16
IFRS 1
IAS 1
IAS 38
IAS 14
IFRS 5
IAS 8
IAS 36
IAS 24
IAS 19
IAS 37
IAS 7
IAS 40
Leases
Property, Plant, Equipment
First Time Adoption
Accounting Policies / Presentational
Issues
Intangible Assets
Operating Segments
Assets Held for Sale
Changes in Accounting Estimates
Impairment
Related Parties
Employee benefits
Provisions & Contingencies
Cash Flow Statements
Investment Property
1
2
=3
=3
=1
=1
=3
=3
5
6
7
=8
=8
10
11
=12
=12
14
=7
=9
6
=9
5
=9
=7
=9
=9
=9
15
16
17
18
=19
=19
=16
=16
=16
15
=16
=16
Less Significant Standards
IFRIC 12
IAS 32 etc
IAS 27 etc
IAS 23
IAS 2
IFRS 3
PFI
Financial Instruments
Group Accounts Issues
Borrowing Costs
Inventories
Business Combinations
Little or No Impact
IAS 10
Events after Balance Sheet date
IAS 11
IAS 12
Construction Contracts
Income Taxes
IAS 18
Revenue
IAS 20
Government Grants
IAS 21
Foreign Exchange
IAS 29
Reporting in Hyper-inflation
IAS 33
IAS 34
Earnings per Share
Interim Financial Reporting
23
Same as existing
standard
Not relevant
Impacts mainly on
Group accounts
Minimal difference to
existing standard
Current SORP
treatment is within IAS
Already included in
SORP
Same as existing
standard
Not relevant
Not compulsory