CIPFA’s new publication aimed at helping councils streamline needs to represent the first step in a much longer journey, writes consultant Peter Worth.
Streamlining the Accounts: Guidance for Local Authorities is due to be published by CIPFA this month.
Download a pre-publication draft of Streamlining the Accounts: Guidance for Local Authorities
This report is the product of a joint project between the Chartered Institute of Public Finance and Accountancy, the Society of London Treasurers, the Society of District Council Treasurers, and accountancy firm Grant Thornton.
The report aims to provide practical guidance on how to simplify published accounts by amalgamating notes and eliminating non-material disclosures and how to streamline year-end closedown by:
- Applying materiality
- Improving project management
- Selection of accounting policies
- Use of estimates
- Expediting the external audit process.
The report contains real-life examples and case studies from joint committees, pension funds and district councils as well as unitary and London boroughs.
The content is not overly technical and the structure allows the reader to dip into different sections of the report as year-end close progresses.
As co-chair of the working group, I would urge anyone involved in local authority financial reporting to read this report, especially as the on-line version is free!
As well as more specific suggestions, the report includes a number of more general messages which will be welcomed by practitioners:
- First of all, the recognition that streamlining and faster closing are linked and not two separate issues, and that it is artificial to try and separate the published statement of accounts from the processes that underpin and create it;
- The understanding that closure includes external audit just as much as accounts preparation work and that steps taken to expedite the audit process, for example by resolving contentious issues early and improving the quality of the working papers and audit trail, can significantly reduce both lapsed time and overall resource input;
- A general encouragement to identify, consider and respond to the needs of readers and users of financial statements. Streamlining is not just about reducing the page count but about providing clearer messages on financial performance and financial stewardship to service users, stakeholders and taxpayers;
- A very helpful acknowledgement that the example accounts in CIPFA’s practitioner guidance notes can and should be adapted to reflect local circumstances;
- Emphasising the importance of applying materiality to accounts disclosures and closedown planning to avoid unnecessary work;
- Finally, section seven provides a useful reminder of the chief finance officer’s responsibilities in this important area, and their pivotal role in driving forward improvements to streamlining and faster close.
Inevitably however, since the remit of the working group was to consider what could be achieved within the boundaries of current code requirements, the scope for change identified may be less than many practitioners might ideally like to see.
I believe that there are three key issues where change is most urgently required:
- Greater adaptation of international financial reporting standards to the local government context, recognising that some disclosures are of minimal relevance to public sector organisations.
- Reducing the number of additional disclosures imposed by legislation over and above those required by accounting standards. These currently comprise up to one-third of the financial statements and include, for example, the dedicated schools grant and senior officer remuneration notes and ring-fenced accounts such as the Housing Revenue Account and collection fund.
- Reviewing the need for statutory overrides currently applied under the capital finance regulations to be reflected in financial reporting. Originally intended as transitional arrangements only, these have been in place for over 20 years now. Their use could be restricted in future to reflect the over-rides in budget and tax setting calculations only, not year-end accounts.
Since any major changes in these three areas will involve not just amendments to the code but also to legislation, the process is likely to be a long and potentially difficult one, but it is extremely necessary and, arguably, already overdue.
CIPFA President Sarah Howard acknowledges, in her foreword to this report, that more work needs to be done to provide clearer, simpler and more transparent financial information.
CIPFA should prioritise code changes accordingly.
Peter Worth is a director at Worth Technical Accounting Solutions.
