CIPFA welcomes ‘important step forward’ in local government accounting procedures

The Chartered Institute of Public Finance and Accountancy (CIPFA) has welcomed changes to the way that local authorities account for depreciation of their assets as an ‘important step forward’.

The changes, announced by the local government minister Nick Raynsford and to be brought in over the next few years, will mean that depreciation will hit the bottom line in local authorities’ accounts and that Government financial support for the maintenance of assets will be linked to the cost of holding and maintaining them.
CIPFA’s local government and finance assistant director, Maureen Wellen said:
“This is something that CIPFA has strongly recommended, provided that the affordability issue can be satisfactorily addressed.”

“Investment in fixed assets is a long-term consideration. Decisions made in the present affect the quality of public services not just for today’s citizens, but also for future generations. It is vital that practices are put in place that both ensure the long-term sustainability of public assets in use, and encourage future developments to be decided on their merits rather than their means of financing. Together with the prudential framework implemented earlier this year, Nick Raynsford’s announcement is an important step forward in this regard.

“I look forward to working further with the government and local authorities to take this matter forward and to hearing further how the issue of affordability is to be addressed,” Maureen concluded.

ENDS
Notes to Editors:

1. Local authorities calculate depreciation and charge this within their service accounts. However, for the consolidation of their general fund accounts they are required by legislation to charge to their bottom line an amount at least equal to the “Minimum Revenue Provision” (MRP), which is defined in legislation and is broadly equivalent to 4% annually of their outstanding debt. The proposed change would mean that depreciation rather than MRP would hit the bottom line. The amounts involved will be different, both in total and for individual authorities. The affordability of this, its differential impact and its funding are issues that will need to be addressed during the change over.

The Chartered Institute of Public Finance and Accountancy (CIPFA) is one of the leading professional accountancy bodies in the UK and the only one which specialises in the public services. It is responsible for the education and training of professional accountants and for their regulation through the setting and monitoring of professional standards. Uniquely among the professional accountancy bodies in the UK, CIPFA has responsibility for setting accounting standards for a significant part of the economy, namely local government. CIPFA’s members work (often at the most senior level) in the public service bodies, in the national audit agencies and major accountancy firms. They are respected throughout for their high technical and ethical standards and professional integrity. CIPFA also provides a range of high quality advisory, information and training and consultancy services to public service organisations. As such, CIPFA is the leading independent commentator on managing and accounting for public money.