The budget pain is nearly over and minds now turn to final accounts. David Green runs down the issues that could do with advance preparation.
Now that the budget cycle is nearly over, for treasury managers at least, thoughts will be turning towards final accounts. And with most authorities aiming for a faster closedown this year, as a dry run for next year’s early statutory deadline, preparation is all important.
A review of last year’s accounts and working papers is an obvious place to start, to spot where there is room for improvement, either on process or on outcome. Were you scrambling around for figures at the last minute — I certainly received a few urgent requests at the end of June — or do you already know who is going to provide what and when? The valuation of unquoted equities and loans to third parties are common areas where the data may not be immediately to hand.
IFRS 13 was a new inclusion last year, with requirements for additional disclosures around fair values, so that will certainly warrant a second look. Are there any instruments that need to move within the fair value hierarchy, maybe as their markets have become more or less actively traded? Did you comply with the new fair values rules for liabilities, or did you continue to use the non-compliant PWLB data?
A review of other disclosure note requirements may also throw up scope for improvements. For example, are you fully compliant with the code when it comes to offsetting assets and liabilities, such as bank accounts in credit and overdraft, or disclosing your exposure to price risk? Are you clear on which debtors and creditors are financial instruments and which aren’t? How about whether LOBO loans should be shown as short-term or long-term borrowing?
If you have entered into any new types of investment or borrowing this year, they may need some thought. The two areas I get most questions on are accounting for covered bonds, especially the floating rate variety, and accruing for dividends from property funds. But bond issues and equity purchases will also be taxing some authorities. And financial guarantees can cause a particular issue, because with no cash movement at inception, they can easily be missed off the accounting system altogether.
Then there are the changes to the code to consider. The slimmed-down movement in reserves statement and the new expenditure and funding analysis shouldn’t present many problems to treasury accountants. You may need to split your movements with the financial instruments adjustment account into different rows on the EFA, with soft loans showing against service departments but premiums showing against corporate amounts.
Although CIPFA is not adopting IFRS 9, the new financial instruments standard, until the last possible date of 2018/19, it will be implemented retrospectively back to 1st April 2017. Treasury accountants should therefore start collecting the necessary data this year end, rather than waiting 12 months to search for old information next year.
Impairments are likely to be the key issue here, as IFRS 9 uses an “expected loss” model instead of the “incurred loss” model of the old IAS 39 standard. The first year’s expected credit losses on all financial assets, plus lifetime expected losses on assets whose credit quality has significantly deteriorated, must be recognised as a revenue cost. This will be a pretty small number on most investment assets, but could be quite a large number on service loans and debtors. If so, this figure will be important for 2018/19 budget planning as well.
David Green is Client Director at Arlingclose Limited. This is the writer’s personal opinion and does not constitute investment advice.
