High-quality and understandable financial statements are central to addressing the crisis in local audit, ICAEW has stated in its response to CIPFA / LASAAC Local Authority Accounting Code Board’s (CIPFA / LASAAC) consultation on emergency proposals for the update of the 2021/22 Code of Practice on Local Authority Accounting in the United Kingdom (‘the Code’) and the 2022/23 Code.
The consultation follows a request from the Department for Levelling Up, Housing and Communities (DLUHC) to CIPFA / LASAAC to consider “the merits of a time-limited change to the Accounting Code” as part of a package of measures to address local authority audit delays. Only 9% of 2020/21 local authority audited accounts were published by the 30 September 2021 deadline.
ICAEW welcomed the measures when they were announced in December 2021, but opposed the request for CIPFA / LASAAC to consider temporary amendments to the Code, which, it argued, “would just store up problems for future years”. ICAEW has reiterated this point in its response to the consultation, highlighting some of those problems and calling for sustainable “whole system” solutions that address underlying issues.
ICAEW expressed concerns that the proposals to defer the implementation of IFRS 16 and ‘pause’ the requirement for professional valuations of operational property would probably not result in the time savings anticipated, but may result in inconsistent approaches by auditors or finance teams. Moreover, the submission warns the proposals would result in users of local authority accounts not having the best information possible. This could hamper decision-making and reinforce the view that the preparation of local authority financial statements is merely a compliance exercise.
ICAEW instead calls for changes to the Code that make local authority accounts easier to understand, describing this as “the best way for CIPFA / LASAAC to help address local authority audit delays”. As a result, the response welcomes that CIPFA / LASAAC is undertaking a project to improve the presentation of local authority accounts.
The submission acknowledges that CIPFA / LASAAC’s ability to truly tackle the impenetrability of local authority accounts is limited by its remit and the multitude of legislation underpinning local authority accounts. With that in mind, it suggests 10 possible ideas for CIPFA / LASAAC to consider. These include a set of more concise model accounts, the implementation of Sir Tony Redmond’s recommendation for a standardised statement of service information and a re-design of the income and expenditure statement.
ICAEW’s response also calls for other stakeholders to play their role. DLUHC should bring forward legislation to decouple pension fund reporting from the main local authority accounts, while the Public Audit Forum should consider if changes are required to Practice Note 10 regarding the audit of operational property. In addition, ICAEW expresses a desire that HM Treasury’s review of operational property valuation results in a “proportionate and sustainable approach across the public sector”.
Oliver Simms, Manager, Public Sector Audit & Assurance at ICAEW, comments:
“ICAEW agrees with CIPFA / LASAAC that action is required to alleviate the delays that have blighted local authority audit in recent years. However, we believe this action needs to be on a long-term basis and the time-limited measures proposed risk creating more problems than they might resolve.”
“We welcome CIPFA / LASAAC’s project to improve the presentation of local authority financial statements and HM Treasury’s review of the valuation of operational property. ICAEW is keen to support both projects and we would welcome the opportunity to share possible ideas in more detail.”
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