NHS IFRS Frequently Asked Questions
Note
At the time of writing (15th February 2008) there remains some uncertainty
about how certain international accounting standards will apply in the public
sector because the Treasury has yet to make the decisions on how those
standards will be adapted and interpreted in a Financial Reporting Manual
(FReM) based on international accounting standards.
Currently, Treasury are consulting and envisage that the Financial Reporting
Advisory Board will consider the responses to consultation on 28th February
2008.
However, Treasury has published its IFRS-based FReM (without guidance on
PFI and infrastructure assets). This can be accessed at www.financialreporting.gov.uk..
A. Timetable and general principles
Q1. What is the overall timetable for implementing IFRS? Is there also
a timetable for what if any other guidance will be issued (eg from future
FRAB meetings), and how this feeds into preparing financial plans?
A.
Treasury’s overall timetable is given to an annex to their letter of 22nd
October from Kirstin Baker – on the FINMAN website section under
“International Financial Reporting Standards (IFRS)” entitled “Process and
Timetable for implementing IFRS in Estimates and Budgets”
Much guidance has already been issued and is available on the NHS FINMAN
website.
To complement this, a letter was issued to SHAs by Bob Alexander on 21st
December 2007, on behalf of NHS Finance to set out what further guidance
will be expected, and to make clear what the responsibilities of the centre will
be, in terms of providing guidance, and what the responsibility of local NHS
organisations will be in implementing it. A copy of this letter is also available
on the FINMAN website.
Q2. When will the draft Manual for Accounts be issued?
include proformas / model financial statements?
Will this
A.
DH has committed to provide Manual for Accounts by 31/03/2008. A
draft chapter on financial reporting requirements and draft NHS Trust pro
forma accounts are already on the FINMAN website.
Q3. The debate over PFI/LIFT being deferred for a year is on-going,
but is this the only element of the regime changes that may not be
introduced from 2008/09?
A.
At the December meeting, FRAB agreed that they would not wish to
see the introduction of IFRS go ahead without the changes to PFI accounting.
PFI accounting will be discussed at the 28 February meeting.
B. In year monitoring
Q4.
How will in-year reporting be conducted in 2008-09?
A:
The current plan is to collect figures from the NHS in-year on both the
current basis and the new IFRS basis too. This is because Treasury are
proposing to move to IFRS during the course of 2008-09 which means outturn
figures will be needed on both bases.
C. Specific Areas
Q5. What guidance is available on valuation methodoloy, including on
‘modern equivalent asset’ valuations?
A:
The IFRS Based Financial Reporting Manual gives guidance on
valuations at paragraph 6.2.7, including details of where further guidance can
be obtained. This includes guidance on Treasury’s financial reporting
website:
www.financial-reporting.gov.uk
Q6. Why are funds flowed to make good the impacts of impairments
not permitted under IAS18?
A:
The objective of IAS18 is to identify the circumstances when revenue
recognition will be met. Where a body receives funds which do not meet the
criteria listed in the standard this would have to be regarded as ‘contributions
from controlling parties’ giving rise to a financial interest, and hence should be
accounted for as financing (ie by crediting to reserves), rather than it making
good the impairment loss.
Q7. Is the District Valuation Service (DVS) aware of the proposed IFRS
changes and is there sufficient capacity if many organisations request a
revaluation now? Is there a sufficiently standardised way of valuing on a
modern equivalent asset basis? Is there scope to agree a standard fee if
there’s likely to be a significant number of revaluations?
A:
Yes, DVS are aware of the change to IFRS standards. Operational
questions on the capacity of local DVS or the fees charged should be
addressed to them. However, it is worth noting that valuations may be
obtained from any qualified valuer, there is no requirement to use DVS. It is
also worth noting that the move to a modern equivalent asset valuation can be
done any time up to 01/04/2010.
Q8. Have auditors accepted the principle that organisations can make
their own arrangements, in potentially different ways, to either revalue /
apply local indexation / make alternative arrangements?
A:
Yes, both the NAO and Audit Commission have accepted this. They
are represented on the Financial Reporting Advisory Board (FRAB) which
advised Treasury on this ruling.
Q9. Will the statutory breakeven duty be amended for NHS Trusts and
PCTs?
A:
As a result of IFRS implementation, the current funds flow
arrangements whereby NHS Trusts receive additional income to make good
the effects of impairments will cease.
This, along with other aspects of IFRS implementation, will have an impact on
the income and expenditure position for NHS Trusts and the measurement of
the Statutory Break-even duty, as there would be more deficits than under the
current measure of financial performance. As a result NHS Finance,
Performance & Operations are considering what changes might be needed to
the measurement of in year financial performance and the Break-even duty.
This will be discussed with the NHS IFRS implementation group once
proposals are ready, and would also need to clear any changes to the duty
with Treasury, Audit Commission, NAO and Ministers.
To be clear, this affects NHS Trusts only SHAs and PCTs are not affected
and will continue to receive resource allocation adjustment subject to the
overall budget. Any cash funds flow for agreed impairments in 2007/08 will
still be actioned in 2008/09 and they relate to transaction prior to IFRS
implementation
Q10. What accounting will be necessary for bringing PFI / LIFT and
leases on balance sheet?
A:
Treasury is currently consulting on proposed public sector treatment for
PPPs (including PFI and LIFT), with the Treasury’s Financial Reporting
Advisory Board due to discuss this next on 28th February 2008. Once a
decision has been taken, guidance will be drawn up and made available,
including on the FINMAN website.
PFI / LIFT and operating leases coming on balance sheet
Q13. Could the NHS be provided with an example of how hypothetically
PFI / LIFT would be brought onto the balance sheet, and can the work on
establishing the potential impact across the NHS be shared?
A.
Please refer to Q10 above. Once it becomes clear how PIF/LFIT will
be treated by the public sector corresponding guidance will be drawn up and
made available.
Q14. Could an example also be provided for operating leases that are
brought on balance sheet? And is the assumption that both the asset
and related liability (even if different amounts) are brought on balance
sheet?
A.
Yes, both the asset and related liability would be brought on balance
sheet. The NHS IFRS working group is working through these issues in
discussion with SHAs.
Q15. If organisations’ financial positions will change if items are
brought on balance sheet, will the change be funded, if so for long, and
when will organisations be told this?
A.
Treasury are arranging meetings with departments to discuss these
issues. Once Treasury have clarified the position details will be shared with
the NHS. In the meantime organisations should not assume that the Treasury
will provide extra funding to cover the changes.
Revaluations
Q16. DH paper for SHA DOFs says “It may suit individual bodies to
revalue in 2007-08 (under current rules) and at the same time obtain
prospective values under the new methodologies to be applied on 1
April 2008”. Are the revaluation figures ‘under current rules’ needed just
for comparative purposes only? ie there’s no 2007/08 financial impact.
A.
The point was being made that, if there was a reason to revalue in
2007-08 organisations may wish to look ahead and obtain a valuation of the
same asset under the new valuation rules at the same time.
Circular flow of funding / impairments
Q17. Will the circular cashflow in 2008/09 be available to clear the
2007/08 year end debtor / creditor balances?
A.
Yes.
Comparatives
Q18. If in restating 2007/08 figures as comparatives, the financial
position in that year changes, how will this change be interpreted (ie
would it affect Trust breakeven duty)?
A.
See answer to question 9.