Stephen Sheen looks back over the past 12 months and reveals how it should guide regulators in the New Year.
I have just looked back at the article I wrote this time last year about the accounting and auditing issues that would be to the fore in 2021. It is a measure of the extent to which local government financial reporting seems to have gone into slow motion that almost nothing I predicted came true. Not even that 2019-20 audits would be completed by the end of 2021.
The curious fact about the delays in publishing the statement of accounts, though, is that it has had little public effect. Where publication has been particularly delayed, the fact in itself has been a stick with which to beat an authority. But life generally has proceeded in an orderly manner. Delay and uncertainty is a nightmare for accounts preparers and audit teams, but those interested in local authority finances have not been particularly impeded.
This is good evidence that local interest is too active and current to be satisfied by telling stories several months (or even years) after events have taken place.
Public interest
Accountability is a live issue for local government, stoked by the public prominence of local authority budgeting and the availability of information (through freedom of information requests, if necessary) and guided by the looming threat that votes will soon be cast.
The audited statement of accounts is important, but it contributes little to assuring local people that an authority is spending money on the things it said it was going to, contracts are regular and operating effectively and commitments are being made that are reasonable and affordable.
Rather than spending 2022 considering how we can best get things back to how they were, there is an opportunity to solve the chaotic situation by asking what people fundamentally want from financial reporting, when they want it, and how much external scrutiny they require of the information provided.
For instance, there would be good value in a statement that reported critically on the outturn against the budgets provided in the council tax leaflet, issued within days of the end of the financial year.
Similarly, the auditor’s value-for-money opinion would be far more beneficial if given during, or just after, the end of the relevant financial year.
———
If we wish to fill the existing democratic deficit, much better (again) to trust authorities to publish an unaudited outturn report on the council tax leaflet as soon as possible after the year-end. —Stephen Sheen.
———
An accounts and audit framework that better meets the public interest, with a focus on financial standing, regularity of expenditure, the prevention of fraud and corruption, etc, will also provide much more attractive experience for the junior auditors on whom the whole framework depends.
I look forward to the debate in 2022. But then I also haven’t given up all hope of making the World Cup squad in November.
Lease is more
From an accounting point of view, the big issues for 2022 also remain those that should have applied for 2021.
IFRS 16 Leases is due for implementation on 1 April 2022. Its main consequence will be to bring assets and liabilities onto the balance sheet of lessee authorities for leases previously accounted for as operating leases.
Both the assets and the liabilities will have an impact on prudential indicators. This impact will initially be wholly procedural, ie., accommodating the newly calculated effect of transactions authorised and entered into in previous years.
But as we move into 2022-23, arrangements will need to cope with the assets and liabilities generated by leases newly entered into or modified. This will also apply to leases where rent reviews are based on rates or indexes, where the accounting will now need to keep up with the longer term impact of changes in rents.
There is therefore an urgent need to be prepared for the 2022-23 prudential indicators, by at least making sure that there is reasonable headroom in measures such as the authorised limit.
Or working out some basis on which members can be assured that unknown knowns need not distress them in the earlier months of the financial year whilst satisfying Prudential Code requirements.
Room151’s Monthly Online Treasury Briefing
January 28 2022
Online
Public sector delegates – register here
Dubious contributor
The other big accounting issue I picked out for 2021 was the standardised statement of service information, on which nothing appears to have happened to date. Audited statements were recommended by the Redmond Review and mooted for implementation for 2021-22.
The same arguments continue to apply as they applied in December 2020. Standardised statements are a dubious contributor to accountability if they will require an authority to reshuffle their outturn figures out of their management structure and into a standard classification. Further, the benefit of an audit stamp of approval would be more than outweighed by the loss of currency whilst we wait for the auditors to pronounce.
If we wish to fill the existing democratic deficit, much better (again) to trust authorities to publish an unaudited outturn report on the council tax leaflet as soon as possible after the year-end.
Expect to hear more on this over the next few months (with no commitment as to what I mean by “few”).
Stephen Sheen is the managing director of Ichabod’s Industries, a consultancy providing a technical accounting support service to subscribing local authorities. He was previously the senior technical manager for local government audit at PricewaterhouseCoopers.
Photo courtesy of Gratisography
