Implementing International Financial Reporting Standards

Report: 13
Date: 22 March 2010
By: MPA Treasurer

Summary

The transition to IFRS is very much a current issue for police authorities and it is important that the MPA closely monitors progress in making the transition to the new arrangements. The move to IFRS does not mean wholesale change, but where changes do occur, a significant amount of work is necessary to assess the impact on the accounts. This report updates Members on progress made by the MPS since the last quarterly report in December 2009.

A. Recommendation

That members note the report.

B. Supporting information

Background

1. The financial year 2009/10 will be the last year that the annual financial statements of police and local authorities are produced in line with UK Generally Accepted Accounting Practices (UKGAAP). From 2010/11 the MPA accounts will be published in line with the new International Financial Reporting Standards (IFRS). Financial statements for the comparative year will also need to be restated on an IFRS basis for 2009/10. This transition is intended to bring consistency and comparability with global economies and follow best practice in the private sector.

Progress to date

2. Good progress continues to be made in preparing for the implementation of IFRS in line with previous updates. The delay in the publication of the CIPFA Code of Practice has caused some slippage against the original plan, however this should be recovered next month. Progress on key areas of the implementation include:

PFI

3. In previous years the Authority’s two PFI schemes have been accounted for ‘off balance sheet’. Under IFRS they are accepted as being under our “control of the assets” (assessed through carrying out a number of control tests) and consequently in future will have to be recognised on the balance sheet. The IFRS Implementation Team has undertaken considerable work to determine the impact of the revised accounting procedures for PFIs on both the way transactions are accounted for and how these ‘new’ assets are presented on the balance sheet.

4. To spread the transition to IFRS more evenly between the two years, the latest CIPFA Statement of Recommended Practice (2009) requires the accounting treatment for PFIs under IFRS to be implemented a year earlier in 2009/10 and the MPA will include the necessary entries in this financial year (and comparative prior year) for publication as part of the statutory accounts. The Authority has engaged its external valuation surveyors G.L. Hearn to perform a valuation of its two PFI schemes to comply with this requirement.

Leases

5. The MPA already has a number of finance leases on its balance sheet and IFRS will extend the number shown. Under IFRS, leases for which the Authority has the benefit of, for a substantial part of the asset’s life will need to be included on the balance sheet as though the underlying asset belongs to the Authority. This applies not only to property related leases but also to other assets. The Authority is reviewing a large sample of its 500 plus property leases, as well as liaising with external valuation surveyors G.L.Hearn to ascertain their likelihood of becoming finance leases. Additionally a review is also being undertaken of all contracts that may involve the use of supplier equipment, which could result in the Authority having to include this on the balance sheet as an asset(s).

Property plant and equipment as components

6. IFRS requires different components of assets to be recorded, accounted for and depreciated separately in the Authority’s fixed asset register. This component accounting requirement applies to the future acquisition or replacement of assets and will not be applied retrospectively. Over recent months the detailed requirements of IFRS have been researched and an accounting policy is being developed which complies with IFRS and allows the Authority to follow the new regulations.

Employee benefits

7. The Authority will in future be expected to accrue for staff benefits in the accounts, including the financial value for any paid leave not taken before the end of the financial year. In the last report to this Committee, Members will recall that there was some uncertainty whether this requirement would have an impact on the budget and accounts. Following publication of the draft Capital Finance Amendment Regulations 2010 and advice from the Audit Commission, it is now clear the accrual will be mitigated through a statutory accounting adjustment and will not have an impact on the council tax payer.

New CIPFA code

8. Following a detailed consultation process, the CIPFA IFRS-based Code of Practice on Local Authority Accounting was received at the end of December 2009. This is the definitive guidance on accounting for local and police authorities under IFRS and MPA accounting policies will be directly based on the content of this code. The publication of this code has enabled the IFRS Implementation Team to refine the accounting requirements of IFRS in terms of what information needs to be disclosed in the accounts. The receipt of the Code was later than envisaged at the time of preparing the original project plan. The only knock-on effect of this change is that the deadline for restating the opening balance sheet at 1/4/09 in 2010/11 format has been altered to 31 March 2010. The revised date will still allow the Implementation Team to achieve the transition to IFRS in sufficient time for the auditors to review the balance sheet.

Training of Finance Officers

9. Training of the Authority’s IFRS implementation team and other key finance officers who will prepare the IFRS financial statements was concluded in December 2009. These officers will continue to attend networking groups of counterparts in other police and local authorities, and appropriate training events and seminars to keep abreast of developments and best practice and develop a consistent approach to developing IFRS accounting. Any associated costs are being met from existing approved budgets. Within the MPS as a whole, discussions are being held with various Business Groups to inform them of changes to their management accounting information both in terms of system changes and budget amendments.

10. The IFRS implementation team keeps the Audit Commission appraised of its developments in interpreting and applying IFRS regulations by holding regular meetings and uses these meetings as opportunities to obtain the Audit Commission’s views on their approach.

C. Race and equality impact

Equality and diversity issues will be properly considered throughout the transition period.

D. Financial implications

Whilst some of the accounting changes from the adoption of IFRS will give rise to changes on the balance sheet and also in the net expenditure reported each year, it is the intention of the Department of Communities and Local Government (DCLG) and CIPFA that any impact on Council Tax payer will be mitigated through statutory accounting adjustments to negate any potential financial impacts from the adoption of IFRS.

Additional MPS costs associated with the adoption of IFRS will be met from existing approved budgets.

E. Background papers

None

F. Contact details

Report author: Annabel Adams, Deputy Treasurer, MPA

For information contact:

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

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