Peter Worth: Streamlining year-end financial reporting 

To successfully meet new reporting deadlines, local authorities may need to streamline both closedown processes and the length of the statement of accounts itself, writes consultant Peter Worth.

Under the Accounts and Audit Regulations 2015, local authorities in England have to produce next year’s accounts by 31 May 2018 and have their audit completed by 31 July 2018: an overall reduction of two months (or 33%) on previous years.

Local authority accounts are notoriously complex.  They contain features unknown in other sectors such as earmarked reserves, ring fencing and statutory over-rides. And the sheer scale of the numbers involved can be mindboggling.  Single tier and county councils can easily spend more than £1bn per annum, and even an average sized district councils spend over £75m per year, dwarfing the £0.5m average turnover for a limited company in the UK which, if not listed on an international stock exchange, would have nine months to prepare and file its annual accounts .

As the 2016/17 audits draw to a close, the question of how to achieve earlier closure next year without either compromising on quality or spending a small fortune on agency staff is a hot topic for many section 151 officers.  The concept of “streamlining” is starting to gather momentum and was one of the workshop topics at CIPFA’s recent accounting conference. “Streamlining”, we learned, involves  improving the speed of closure through (1) more effective processes, and (2) reducing the amount of information that needs to be reported in the first place.

CIPFA and LASAAC (Local Authority (Scotland) Accounts Advisory Committee) actively seeks opportunities for streamlining. CIPFA is working with local authorities on this agenda, and the DCLG is keen to play its part. Having identified that a substantial number of disclosure notes result from specific statutory provisions as opposed to general accounting requirements, DCLG plan to consult on changes to the accounts and audit regulations with a view to implementing reduced requirements next year.

However, much can be done at a local level in advance of code or legislative changes.  I have set out below my “top 10” suggestions for streamlining processes and for shortening the length of the year end Statement of Accounts.

Streamlining the Process 

• Practice in-year with “mini-closedowns”: Completing system reconciliations and other key closedown tasks on a quarterly or even monthly basis will not just assist with year-end closedown but also improve the quality of in-year financial reporting.
• Share the workload: Many disclosure notes are self-contained and quite straightforward and can be prepared by anyone with common sense and basic numeracy skills. Involve service accountants and budget holders wherever possible to benefit from their operational knowledge of contractual obligations, income streams and capital investment plans.
• Failing to plan is planning to fail: Closedown plans don’t need to be over-detailed but they do need to identify key tasks, critical path/interdependency issues, and third party information requirements such as valuer’s and actuary’s reports. Set clear deadline dates for preparation and review and stick to them.
• Start early: The accounts template, accounting policies, financial instrument risks and around half of all disclosure notes can be drafted and audited well in advance of 31 March each year.
• Prioritise closedown activities so deadlines are achieved.
• Ensure ledger codes are fit for purpose and minimise the amount of additional analysis required.
• Keep ledger postings up to date and make sure that suspense/holding accounts are cleared every month.
• Use estimation techniques to simplify accruals, provisions, overhead allocations and similar calculations.
• Prepare clear and comprehensive working papers that can be “rolled forward” and re-used.
• Allow adequate time for detailed checking and s151 review.

Shortening the accounts

CIPFA’s guidance notes and statement of accounts templates are intended to be illustrative only and need not be copied slavishly in order to obtain an unqualified audit opinion. Shorter accounts would not only be quicker to produce but might also be  easier for those charged with governance and local taxpayers to understand.

• Editing the accounts to avoid all duplicated information in accounting policies and disclosure notes — especially on IAS19, service concessions and between accounting policies and detailed disclosure notes.
• Editing the narrative report and annual governance statement to focus on key messages only.
• Replacing text with tables and combining disclosures where possible e.g. on property plant and equipment, financial instruments/IFRS13 and related party transactions.
• Editing accounting policies to focus on instances where the code has been departed from, or permits, discretion in methods of accounting. Accounting policies do not need to include large chunks of the code or explaining detailed accounting entries at debit and credit level.
• Redrafting financial instruments risk disclosures, so that these focus on the risks actually faced by the authority.
• Combining the expenditure funding analysis (EFA) and comprehensive income and expenditure statement (CIES)
• Deleting non-material disclosure notes e.g. on stock, long term debtors, assets held for sale and reducing the size of remaining disclosure notes by combining non-material items.
• Replacing disclosure notes with more detail on the face of core statements.
• Removing the line-by-line statutory adjustments disclosure as the EFA note now provides this information in summarized form.
• Amend pensions notes to remove duplication and provide a link to pension fund accounts for detailed information rather than duplicating in accounts.

By adopting the principles set out above and working within the existing Code requirements, a number of authorities including Westminster City, Southwark, City of London, Chichester and South Gloucestershire have reworked their accounts to examine the extent to which they could be reduced  as follows:

CIPFA’s annual Invitation to Comment on the Code of Practice runs until 6 October 2017. Click here. http://www.cipfa.org/policy-and-guidance/consultations/code-of-practice-on-local-authority-accounting-in-the-united-kingdom-2018-to-2019-invitation-to-comment.

This provides an excellent opportunity for practitioners to comment on the Code and year-end financial reporting.

Peter Worth is a director at Worth Technical Accounting Solutions.

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