Implementing International Financial Reporting Standards

Report: 9
Date: 11 September 2008
By: Treasurer and Director of Resources on behalf of the Commissioner

Summary

In March 2007, the Government announced in its Budget Report the intention that all government and other public bodies should in future publish their annual financial statements in line with International Financial Reporting Standards. The new reporting standards are to be implemented by central government bodies for 2009/10 and other public bodies, including Police Authorities for 2010/11.

Early planning is seen as key in successfully making the transition to the new arrangements, and this report aims to provide members with an early indication of the task ahead.

A. Recommendation

That:

1. members note the report; and
2. the Committee receive regular updates until the new arrangements for accounting are in place including a detailed project plan at the December meeting.

B. Supporting information

Background

1. The annual financial statements of government bodies and other public bodies, including police authorities are currently produced in line with UK Generally Accepted Accounting Practices (UKGAAP). However, in March 2007 the Chancellor’s Budget Report announced the Government’s intention that the annual financial statements of government departments and other public bodies were in future to be published in line with international financial reporting standards (IFRS). The intention was to bring consistency and comparability with global economies and follow best practice in the private sector.

2. Central Government bodies will need to report on an IFRS basis from 2009/10, with other public bodies, including Police Authorities, reporting on an IFRS basis from 2010/11. Statements for the previous year will also need to be restated to produce prior year comparatives.

Implications

3. Whilst it is difficult to judge at this point in time the impact that transition to these new reporting standards will have on the Authority and MPS, it is clear that IFRS is likely to be a challenge with the implications complex and wide ranging and the transition will effect many areas of the organisation and not just those responsible for financial reporting. Key changes likely to impact on the accounts are summarised below:

4. Accounting for PFI schemes – The Authority currently has two large PFI schemes both of which are accounted for 'off balance sheet'. In order to conform with IFRS requirements these are likely to come back on the balance sheet. The new arrangements for accounting for PFIs are to be included in CIPFA’s consultation on the 2009 Code of Practice on Local Authority Accounting, and there is the possibility that the arrangements will apply from 2009/10 onwards, a year earlier than the date of transition to the new requirements. The likelihood is that we will need to have the PFI schemes reviewed once the code of practice has been issued to determine the new accounting treatment.

5. Leases for property – These will need to be split in two, one for land and one for buildings, with accounting treatment for each potentially being different. All existing leases will need to be reviewed, and from now on all new leases should identify the land and buildings element separately.

6. Employee benefits – There will be a need to accrue for all employee benefits in the year in which they were earned. This will include both untaken holiday pay at year-end and possibly police officer overtime where a decision is yet to be taken on whether payment for overtime or time off will be claimed. Currently all leave is accounted for manually therefore this requirement could potentially be a major task. Any financial effects on the revenue account in the first year of implementation will need to be carefully considered and guidance is awaited.

7. Disclosures to the accounts – The private sector experience of IFRS was that the statement of accounts significantly increased in size due to the greater disclosure requirements. CIPFA are currently consulting on local authority accounts, to identify any scope for simplification of the requirements, whist still ensuring that the requirements of the IFRS are met.

8. The above implications are, at present, only educated guesses, based on current thinking. In the Autumn the CIPFA/Local Authority (Scotland) Accounts Advisory Committee Board (CIPFA/LASAAC) are due to publish what they have identified as the main effects of IFRS on local authorities, which will enable the Authority and MPS to then start planning in earnest.

Project set up and governance

9. Early planning is seen as key in ensuring a successful transition to IFRS and it is essential that a full project management process be adopted. A project manager has already been appointed within the MPS and initial thoughts have been given to the project set up. This will include regular oversight from a project board chaired by the Treasurer, the project sponsor, and a project group with representatives from key representatives from the MPA and MPS. Corporate Governance Committee will also need to provide regular oversight throughout the transition period.

10. It will also be important to engage with external audit throughout the process. Whilst unable to recommend how we should adopt IFRS they will be able to discuss with us our interpretation of the new standards.

11. A detailed project plan is currently being developed and the intention is to report back to this Committee in December on this and (if published in time) the main effects identified by CIPFA/LASAAC.

C. Race and equality impact

The Authority and MPS will ensure that equality and diversity issues are properly considered throughout the transition period.

D. Financial implications

Whilst the introduction of IFRS will impose greater burden on those preparing the accounts than on those auditing them, there will nevertheless be extra work for external audit. The additional cost in 2010/11 is as yet unqualified.

E. Background papers

None

F. Contact details

Report author: Annabel Adams, Deputy Treasurer

For information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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