Implementing international financial reporting standards

Report: 18
Date: 14 June 2010
By: Treasurer

Summary

Early in 2007 the Government announced the intention that all government and other public bodies should in future publish their annual statutory accounts in line with International Financial Reporting Standards (IFRS). Thorough preparation is essential in successfully making the transition to the new arrangements, and this report provides members on progress made since the last update in March 2010

A. Recommendation

That members note the report.

B. Supporting information

Background

1. The financial year 2010/11 will be the first year that the annual financial statements of police and local authorities are produced in line with the new International Financial Reporting Standards (IFRS) as interpreted by CIPFA in its Code of Practice. Financial statements for the comparative year will also need to be restated on an IFRS basis for 2009/10. The transition to IFRS is intended to bring consistency and comparability not only with other local authority financial statements but also with the private sector.

Progress to date

2. Considerable progress has been made in developing the methodology required for applying IFRS regulations following the publication of CIPFA’s Code of Practice on Local Authority Accounting in December 2009. The MPA has been able to refine the accounting requirements of IFRS in terms of what information needs to be disclosed in the accounts. There are however still some detailed issues in the regulations that need greater clarification, and the MPA is actively seeking the resolution of these issues through the sharing of views with other Authorities. It is expected that the publication of CIPFA’s Practitioners Guidance Notes to the Code of Practice will also provide greater clarity on these matters.

3. Progress on key areas of the implementation include:

PFI

4. The Authority’s two PFI schemes are being treated as assets and the MPA has identified the details of the assets and liabilities involved in these schemes. Additionally the MPA has completed the processes of setting up these transactions on the general ledger to enable the PFIs to be accounted for on the balance sheet. This has been actioned in line with the latest CIPFA statement of Recommended Practice (2009) to spread the impact of IFRS more evenly between the two years this change in accounting treatment has been implemented a year early,. A specialist from the Audit Commission is currently reviewing the relevant accounting transactions to agree the principles behind the calculation of the figures presented in the balance sheet for 2009/10.

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. The Authority has reviewed a large sample of its 500 plus property leases and identified approximately 20 leases as possibly being finance leases and the Authority is in discussions with it’s external valuation surveyors to ascertain, in some marginal cases, whether the leases are finance lease or not. Additionally a review has been undertaken of all contracts that may involve the use of supplier equipment. The results of this review are being assessed to determine whether to include assets within the contracts on the balance sheet.

Property plant and equipment as components

6. IFRS requires different components of assets to be recorded individually and depreciated separately from their main assets in the Authority’s fixed asset register. The Authority is currently liasing with external auditors and other local authorities to agree the appropriate way of implementing this particularly with regard to its practical application for properties.

Employee benefits

7. The Authority is going through an exercise to calculate the likely accrual costs for 2009/10 of unused holiday leave and rest days for its staff. It has already been determined that an accrual for flexi leave is not required on the basis that the cost involved is not significant. As stated in the last report the accrual for police staff and officers will be mitigated by means of an accounting adjustment and will not have an impact on the council tax payer.

C. Race and equality impact

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

D. Financial implications

The cost of implementing the requirements of IFRS are marginal including the specialist team within the MPS working on IFRS and are expected to be contained within existing budgets.

Although there will additional work undertaken by the Audit Commission with regard the transition to IFRS, the Audit Commission have decided to subsidise these costs and accordingly our total audit fee for 2010/11 remains the same as 2009/10 at £516,000.

E. Legal implications

None given.

F. Background papers

• None

G. 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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