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CIPFA/LASAAC support further deferral of IFRS 16

Author: ICAEW Insights

Published: 22 Mar 2022

CIPFA/LASAAC do not intend to bring forward proposals to pause operational property valuation in local authority financial statements but recommend further deferral of the implementation of IFRS 16 until 2024/25.

The CIPFA/LASAAC Local Authority Accounting Code Board (CIPFA/LASAAC) have published their feedback statement following their recent consultation on time-limited changes to the 2021/22 Code of Practice on Local Authority Accounting in the United Kingdom (‘the Code’) and the 2022/23 Code.

The consultation consisted of two ‘emergency’ proposals designed to address the severe delays that have blighted local audit in recent years:

  • a temporary ‘pause’ in the requirement to obtain professional valuations of operational property with consideration of applying an index in the interim period; and
  • further deferral of IFRS 16 (Leases), adopted in private sector companies in 2019/20.

ICAEW’s response to the consultation, one of 216 such responses, did not support either proposal. It set out concerns about the effectiveness of the measures in saving time and potential unintended consequences. Moreover, it warned that departing from best practice in financial reporting risks reinforcing the impression that the preparation of local authority financial statements is just a compliance exercise.

As a result of the responses, CIPFA/LASAAC have decided not to progress the proposal to pause professional operational property valuations. They cite mixed views among respondents with many raising concerns, also raised by ICAEW, that many local authorities have already obtained professional valuations for 2021/22 and potentially creating disproportionate work in future years in auditing ‘catch-up’ valuations.

CIPFA/LASAAC note that ICAEW, ICAS and the four national audit bodies opposed the proposal to defer IFRS 16. However, this proposal received the support of 83% of respondents and CIPFA/LASAAC intend to pursue the deferral of IFRS 16 for a further two years until 2024/25. This is despite the standard being adopted in central government and the NHS in 2022/23.

CIPFA/LASAAC will now consult on the proposal with HM Treasury’s Financial Reporting Advisory Board (FRAB). The feedback statement states the outcome is “not a foregone conclusion” and advises local authorities not to suspend work on IFRS 16 preparation until a final decision is made in early April.

The feedback statement does not address the responses to question 10, which asked for further comments on the impact of the Code on audit timeliness. ICAEW’s response included suggestions for how amendments to the Code could improve the understandability of local authority accounts. It welcomed that CIPFA/LASAAC plan to review the presentation of local authority accounts this summer and suggested 10 ideas for the Board to consider.

Oliver Simms, Manager, Public Sector Audit and Assurance, at ICAEW commented:

“We are pleased that CIPFA/LASAAC are not pursuing the proposals to pause professional valuations of operational property as this would have risked creating additional long-term issues without addressing the underlying disconnect between the priorities of accounts preparers and audit regulators.”

“ICAEW raised concerns that the deferral of IFRS 16 would reinforce an impression that the preparation of IFRS-based local authority financial statements is a compliance exercise. As CIPFA/LASAAC are going ahead with the deferral, all stakeholders, including ICAEW, must redouble efforts to highlight the value of high quality and understandable financial statements for communicating key financial information.”

• Read ICAEW’s response to the CIPFA/LASAAC consultation.