The Society of District Council Treasurers (SDCT) has identified seven ways to improve district council reporting and help streamline the accounts and audit process.
A new discussion paper, which builds on consultation responses, a survey of its members and conference debates, calls for separate materiality levels to be applied to the balance sheets of local authorities commensurate with total assets values.
The SDCT said that district councils have been “disproportionately impacted” by audit delays because of the way materiality figures are currently applied to the balance sheet of local authorities, bringing “a level of audit scrutiny to figures that implies a false, and unachievable, accuracy”.
The change should be supported by clarity within the system that the approach will not be challenged by regulators, the SDCT added.
The society also called for “suitably qualified” expert external valuations to be relied on by auditors, subject to normal review of the information supplied by local authorities to that valuer. The intention is to avoid “arguments” between local authorities’ external valuers and the valuation teams of auditors.
Noting that some of the ‘additional information’ contained in statements of accounts “harks back to a time when the accounts were physically published” and unnecessarily lengthens the size of the document in a digital and open access age, the SDCT called for CIPFA and regulators to provide guidance on how to best make use of online functionalities and reduce the length of accounts. The government should also review the statutory disclosures within accounts, it said.
The discussion paper also suggests that both pension fund accounts and the Collection Fund be separated from individual local authority accounts through government legislation. Local authorities should, respectively, be required to account on a defined contribution basis and account for tax income on a legislative basis, the SDCT said.
A sixth ‘ask’ is on mandating full valuation every five years with indexing of values in other years, which has been the subject of a CIPFA/LASAAC consultation. The SDCT said that while it supported this approach, “for the audit burden to be reduced it should be mandated along with the use of prescribed indices to minimise scope for audit challenge”.
Greater clarity should also be given as to what constitutes impairment of non-investment assets under such a regime, the society said, with impairment “only being required where it prevents the authority using assets for their intended service purpose”.
Finally, the SDCT called for a review of the “overcomplicated” Expenditure and Funding Analysis (EFA), which attempts to set out the adjustments between the IFRS statements and funding basis of local authorities. “Consideration” should be given to replacing the EFA with a “much simplified” Capital Funding Statement.
The SDCT’s discussion paper highlighted that a “more fundamental approach” alongside the seven asks would be to “separate out the IFRS accounts and a simple expenditure and funding statement aimed at the local taxpayer”.
The paper stated: “CIPFA/LASAAC may wish to give consideration to standard format local authority IFRS based accounts along the lines of that produced by the NHS. This would allow easier and automatic consolidation at a national level and sit alongside the existing RA and RO forms. Local authorities could then focus on publication of information for taxpayers in line with the statement proposed by Tony Redmond as part of his review.”
The discussion paper has been sent to CIPFA/LASAAC, the Ministry of Housing, Communities and Local Government (MHCLG), the National Audit Office (NAO) and the Financial Reporting Council (FRC).
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