Public sector financial reporting updates: UK and International
1 March 2021: ICAEW’s Public Sector team highlights key public sector financial reporting updates covering the UK and International Public Sector Accounting Standards.
UK Central Government updates for 2020/21 reporting cycle
HM Treasury has decided to reduce the reporting requirements for departments and other government entities for the upcoming March year end. The impact of COVID is still being felt, with many finance teams remaining stretched with little spare capacity to implement new financial reporting requirements.
They have set out the minimum reporting requirements in a separate addendum to the 2020-21 Financial Reporting Manual (FReM), a copy of which can be found here. It should be noted that the reduced reporting requirements are only in place for 2020-21 and only relate to non-audited elements of the annual report. Furthermore, departments that plan to streamline their annual reports must contact their select committees in advance.
The following package for the 2020/21 reporting cycle has been announced:
- Entities applying the FReM are permitted to omit the performance analysis within the performance report. Just as last year, entities have the option of only producing the summary information in the performance overview as set out in paragraph 5.3.3 of the 2020-21 FReM.
- Entities will not have to follow all of the requirements of the accountability report in relation to the Statement of Outturn against Parliamentary Supply (SOPS). For example, entities will no longer be required to adhere to the ‘comply or explain’ requirement that SOPS disclosures must follow the form of the illustrative disclosures.
- IFRS 16 Leases, as adapted and interpreted by the FReM, will be effective from 1 April 2022 with limited options for early adoption from 1 April 2019 and 1 April 2021. Some departments have already adopted IFRS 16 due to having material-sized subsidiaries which apply IFRS. Examples include the BBC, Network Rail and HS2. HM Treasury has issued application guidance in December 2020 which can be accessed here.
- The administrative deadline to lay resource accounts (audited accounts) has reverted to 30 June (from 30 September) but extensions to this deadline due to continuing COVID-19 pressures are likely to be granted.
International Public Sector Accounting Standards (IPSAS) – update
The International Public Sector Accounting Standards Board (IPSASB) continues to focus primarily on developing public sector-specific standards. However, there are also some important IFRS alignment projects in progress.
Revenue and Expenditure
Arguably some of the most important public sector-specific transactions are non-exchange transactions covering taxation and grants. IPSASB has recently consulted on three new standards:
- a) IFRS 15 alignment covering commercial revenue transactions
- b) Non-exchange income
- c) Non-exchange expenses.
The three proposed standards are all driven by the existence or not of performance obligations. A detailed review of the consultation responses is due to take place at the next IPSASB meeting in March 2021. Early indications seem to suggest that some constituents are finding the proposals overly complicated.
Another key project nearing the consultation phase is on public sector measurement. This project was kick-started by the arrival of IFRS 13 Fair Value but has been expanded in scope to include all major measurement bases found in IPSAS.
IPSASB is proposing a new measurement basis called ‘current operational value’. It is similar to fair value as defined in IFRS but doesn’t share all the characteristics which can make application in a public sector context difficult. The main difficulty can be the assumption that the asset is deployed at its highest and best use which is perfectly sensible in a private sector context but not always in a public sector one. For example, a school may be situated in a prime city location and its highest and best use may be office space. However, a government body may not be able to change the use of the building as a school due to legislation or other political factors. So, the fair value of the school would be restricted and would not be at its highest and best.
Other projects being worked on include topics such as leases, natural resources, heritage and infrastructure assets. The IPSAS Board will also be consulting on new projects in due course as part of their mid-period work program review.
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