Implementing international financial reporting standards

Report: 12
Date: 2 December 2010
By: Treasurer and Director of Resources on behalf of the Commissioner

Summary

To provide the Committee with a quarterly progress update on the implementation of International Financial Reporting Standards (IFRS) within the MPA/MPS.

A. Recommendation

That members of the Committee note the contents of this report.

B. Supporting information

Background

1. With effect from 1 April 2010, local authorities are required to prepare their accounts following the International Financial Reporting Standards (IFRS) and the International Public Sector Accounting Standards (where these provide additional guidance to local authorities) as interpreted by the CIPFA Code of Practice on Local Authority Accounting in the United Kingdom 2010/11.

2. As reported to the Committee in September, the IFRS implementation project has been established to coordinate the transition across the MPA and relevant MPS business groups including Finance Services. The purpose of this report is to update the Committee on the status of the IFRS implementation.

Current status

3. Significant progress continues to be made on developing the IFRS compliant statutory accounts and finalising the implementation of accounting changes as a result of IFRS.

Fixed Assets

4. A significant proportion of the identified IFRS changes will affect the fixed assets of the Authority. Since the last report the IFRS team has established the asset values to be applied to the general ledger and has:

• finalised a methodology for assessing leases to determine whether they are finance leases (the methodology is now used by other Authorities). Following which 3 Finance leases (from a total of 550 leases) have been identified;
• identified assets held for sale under the IFRS definitions;
• produced the revised accounting entries for investment properties.

Employee benefits

5. Another change relates to the inclusion in the accounts of the cost of unused holiday and rest days (benefits). The sums involved have now been determined based on completed details of unused holiday and rest days for police officers and PCSOs and extensive sampling of police staff unused holidays across the MPS to calculate the liability.

Interpretation of the Standards and revised accounting policies

6. The greater part of the work by the IFRS Team has involved interpretation of IFRS, for the purpose of preparing the new format Statement of Accounts for both 2009/10 and 2010/11. A series of meetings have been held with other police authority practitioners to share our experiences. These meetings provide a level of assurance that the interpretation adopted by the MPA/MPS is being applied by other forces, particularly those forces who are just starting to deal with this significant change.

7. CIPFA has recently announced that it will publish guidance notes for practitioners on how to apply IFRS to local authority accounts. This document is expected in December 2010. The intention is to review the IFRS requirements as specified by the CIPFA guidance, before finalising the draft format of the Statement of Accounts. It should be noted that it may take several years before a high degree of consistency is reached across the public sector in respect of the technical interpretation of some of the regulatory requirements. This is because of the speed at which IFRS has been introduced, (compared to UK GAAP which evolved over time) and the sheer weight of IFRS and IPSAS standards that need to be interpreted.

8. At the last meeting in September 2010, the Committee received an update outlining the new draft accounting policies that comply with IFRS. Whilst these draft policies are not expected to change practices and procedures significantly, the new MPA accounting policies will need to be finalised and approved by the MPA by March 2011, in order to set the standards by which the MPA’ accounts are produced for 2010/11.

New format for the Accounts

9. An initial draft of the new format for the 2010/11 accounts is being developed which includes financial statements consisting of the new Comprehensive Income and Expenditure Statement, the revised Balance Sheet, new Movement in Reserves Statement and revised Cash Flow Statement. Additionally work has commenced on producing a revised Foreword and a more detailed set of disclosure notes to the accounts as required by IFRS;

10. Final tasks still in progress:

• Produce an opening balance sheet for 1 April 2009 on an IFRS basis;
• Produce a set of pro-forma accounts for future years from 2010/11;
• Prepare the accounting entries and new disclosure notes for the regulatory changes identified to date;
• Calculate the revised figures for 2009/10 to be included in the 2010/11 accounts;
• Review the IFRS requirements as specified by the new CIPFA guidance notes (see above), before finalising the draft format of the statement of accounts;
• Finalise the accounting policies for component accounting. The standard (which requires organisations to value and depreciate significant components separately from their main assets in the asset register) is causing some difficulties in interpretation and application. If applied using the strict definition given, the standard could create significant additional work and cost (of valuation). In the present economic climate this appears to be an unreasonable approach. The Authority is currently liaising with external auditors and other local authorities to agree an appropriate way of implementing this, particularly with regard to its practical application for properties. Property Services and Finance staff are also attempting to develop a model that would satisfy IFRS whilst keeping costs to a minimum.

11. Key milestones between now and the end of March 2011 are as follows:

C. Other organisational and community implications

Equality and Diversity Impact

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

Consideration of MET Forward

Whilst this report has no ‘direct’ implication for the delivery of MET Forward, it does however support the Met Forward Met Support Strand.

Financial Implications

1. The cost of implementing IFRS will be met from existing resources..

2. Similarly 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.

Legal Implications

This report is generated as part of the governance process and no direct legal implications arise.

Environmental Implications

There are no direct environmental implications arising from this report which is submitted as part of the Governance process.

Risk Implications

Failure to properly implement IFRS could result in the Auditor issuing a qualification on the Authority’s Statement of Accounts. Risks of non compliance with IFRS will be mitigated by activity in this report including audit review of restated balances and pro-forma accounts.

D. Background papers

• None

E. Contact details

Report author: Joy Lincoln, Lead Accountant, Finance Services, MPS and Annabel Adams, Deputy Treasurer

For information contact:

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

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