CIPFA and the Local Authority Scotland Accounts Advisory Committee (LASAAC) have proposed that implementation of IFRS 16 be delayed following the “exceptional consultation” on updates to the code of practice that governs local authority accounting.
In a statement following the closure of the four-week consultation period, the CIPFA/LASAAC Local Authority Code Board outlined its preliminary decisions stating: ‘The Board decided to pursue the option of deferring implementation in the code of IFRS 16 Leases, subject to consideration and review of this approach by the Financial Reporting Advisory Board (FRAB).”
It added that the deferral would be for a fixed period of two years and apply to all UK jurisdictions.
The board admitted that it had been unable to reach a consensus view on IFRS 16 and the decision was “not a straightforward one”. A recommendation to delay was “made on the basis of a majority vote, which passed by the narrowest possible margin”.
The exceptional consultation ran from 3 February to 3 March in response to delays to the publication of audited financial statements. In total, 216 responses were received, with the majority (165) coming from local authorities.
Conrad Hall, chair of the CIPFA/LASAAC Code Board, told Room151 that the response to the consultation had been “fantastic”, with “excellent arguments” on both sides of the debate.
“A significant majority of respondents agreed with the proposal to defer the implementation of IFRS16, but I also want to acknowledge the strength of the arguments made against it too,” he said.
“I think that the consultation has also brought into sharp focus the wider issues with the local authority accounts and audit system, which we all know is not working as it should.”
Hall, who is also director of resources at the London Borough of Newham, said that the deferral request would be considered at a FRAB meeting at the end of March.
I think that the consultation has also brought into sharp focus the wider issues with the local authority accounts and audit system, which we all know is not working as it should.
FRAB decision ‘not foregone conclusion’
If the delay to IFRS 16 implementation is confirmed by FRAB, then the code requirements will revert to IAS 17 Accounting for Leases. However, preparers were advised not to suspend work on IFRS 16 implementation in anticipation of the deferral, as the outcome of the FRAB review is “not a foregone conclusion”.
The CIPFA/LASAAC board decided not to go ahead with the other main issue discussed in the consultation: to allow local authorities to pause professional valuations for operational property, plant and equipment for up to two years.
According to Hall: “On balance, after much careful consideration, we have decided that the options around valuation had too many complexities and that the risk of unintended consequences of any change was too high.”
Respondents to the consultation had been more supportive of the delay to IFRS 16 than to the valuation pause, with 180 responses in favour of delaying IFRS 16 and 23 opposed. In contrast, 98 respondents agreed with pausing valuations (with no indexation) and 87 disagreed.
CIPFA/LASAAC emphasised that board members were supportive of IFRS 16. “However, those that voted for deferral expressed a view that this would be a pragmatic response to alleviating audit timelines by removing the additional resource requirement anticipated by both auditors and preparers as part of implementing the new standard.”
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