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Local Authority (Scotland) Accounts Advisory Committee (LASAAC)

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LASAAC Comments on Proposed Community Empowerment and Renewal Bill

The Scottish Government requested a LASAAC response on initial proposals to develop legislative measures supporting Community Empowerment and Renewal. The objective of the bill will be to "make it easier for communities to take over underused or unused public sector assets" as well as enabling communities to "deal more effectively with derelict or unused property in their area".

LASAAC commented on the following:

Common Good:
- The Bill presents an opportunity to clarify the legal rights and responsibilities of councils in relation to Common Good assets
- The charitable status of some Common Good and Trust Funds may affect the proposals
- Some local authorities may have processing capacity issues if a large number of applications are made for asset transfers
The Bill is most likely to affect assets classified as 'Property, Plant & Equipment: Surplus Assets' and 'Assets Held for Sale'
The duty of Best Value may require the authority to consider the sustainability of any transfer

To see the full response please click here.

LASAAC Praises Scottish Local Authority IFRS Implementation

LASAAC have formally praised the implementation of IFRS by Scottish local authorities, with no qualifications due specifically to IFRS implementation arising in 2010/11. The commitment of all those involved, including practitioners, property professionals and auditors was recognised. LASAAC issued a press release stating:

Scottish Local Authorities set high standard by successfully implementing new accounting framework

The current economic environment places significant focus and pressure on the efficiency and sustainability of public sector finances. Against this background the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) has congratulated Scottish local authorities for successfully implementing internationally recognised accounting requirements.

The adoption of reporting requirements based on International Financial Reporting Standards (IFRS) in Scottish local government for 2010/11 was a significant challenge for the organisations involved, especially with restrictions on the resources available. The new reporting framework required significant changes in respect of employee benefits, grant income, property and assets held for sale.

IFRS implementation means that Scottish local authorities, along with the rest of the UK public sector, are using internationally recognised financial reporting standards. This is a major step forward in transparency and accountability, and supports the initiative that CIPFA recently launched calling for a co-ordinated and concerted global effort to improve reporting, auditing and public financial management practices by governments around the world.

Chair of LASAAC, Lynn Bradley, said:
?The successful implementation of International Financial Reporting Standards by Scottish local government is of critical importance as the whole public sector moves towards adoption of a common set of underlying accounting standards. The hard work, expertise and professional approach of all those involved achieved a superb outcome for Scottish local authorities.?

Loans Fund Operations: Review of Structure, Role and Purpose

LASAAC recently considered a paper from a practitioner based working group on accounting issues affecting the Loans Fund. The paper suggested potential changes and clarifications intended to secure more consistent practices across Scotland. Following consideration of the report LASAAC concluded that:

Prior to proceeding further with the development of accounting guidance the objectives and functions of the Loans Fund would benefit from review
Such a review will provide the key principles which should determine appropriate accounting treatment
The undertaking of such a review is out-with the remit of LASAAC and should be taken forwards by the Scottish Government?s ?Capital Finance Working Group? (CFWG)
Such a review is unlikely to be discussed at the next meeting (August 2011) of the CFWG but is likely to be an agenda item for the following meeting (February 2012)
The Scottish Government identified a critical need for the involvement and advice of experienced treasury managers, and particularly for representation from the Treasury Management Forum

A copy of the draft (unapproved) LASAAC meeting minutes of 13 June 2011 are available for those interested in the discussion that occurred (see item 23/11 on page 4). The report is also available as part of the meeting papers. Click here to access the report.

Holding To Account: LASAAC Publishes Guidance on How to Use Local Authority Financial Statements

LASAAC has issued a document which is intended to help readers of Scottish local government financial statements make the most of the opportunities and minimise the challenges of International Financial Reporting Standards (IFRS). The document is primarily aimed at those charged with governance, particularly elected members, but will also be of use and relevance to other readers of the financial statements.

The main target audience for the document is elected members, since they are primarily responsible for the governance of local authorities. It is recognised that the whole document may not be read, in its entirety, by members however the document is envisaged to prompt change through:

Use as a reference document by members and interested parties
Use by a variety of individuals and organisations as a supplement to, and support for, the training and professional development of elected members.

The document is expected to lead to change and impact on public service provision through improved corporate governance. In particular the document supports potential improvement in the stewardship of public resources, the management of risk to public resources and the financial sustainability of public service delivery.

While the document is clearly based on the Scottish environment much of the content will be relevant UK wide.

Comments following a consultation process included:

?We believe that this consultation is timely and reflects a commitment to making financial statements understandable to elected members residing on local authority overview and scrutiny committees and / or a lay person. Also, the consultation demonstrates a commitment to stewardship, transparency and accountability of public funds.?
?As a document, that is intended to support the scrutiny, particularly by elected members, of Scottish local authority IFRS based financial statements, it will be a valued reference point. It addresses the key challenges in helping users understand IFRS accounts.?

To download the document click here.

Scottish Local Government Pension Schemes Financial Reporting Arrangements 2010/11

The Scottish Government has issued Finance Circular 1/2011 including statutory guidance that affects LGPS (Local Government Pension Scheme) administering authorities. The circular implements the following:

External auditors required to provide a separate audit opinion (i.e. separate audit certificate) on the LGPS financial statements. This is a change to existing practice which includes the LGPS fund within the audit of the administering authority itself.

LGPS financial statements to be included in the separate annual report as required by the Local Government Pension Scheme Amendment (Scotland) Regulations 2010 (SSI 2010/234). There is no longer a requirement for the LGPS financial statements themselves to be included within the financial statements of the administering authority.

For 2010/11 transition arrangements apply. The LGPS financial statements (fund account, net assets statement and supporting disclosure notes) must be submitted for audit by 30 June 2011. All other elements of the LGPS annual report are to be submitted for audit by 30 September 2011. The audit process is to be complete by 30 November 2011.

To see Finance Circular 1/2011 click here.

To see the contents of the LGPS annual report as required by SSI 2010/234 click here.

Code of Practice on Local Authority Accounting in the United Kingdom 2011/12 (2011)

The 2011/12 Code is the first annual update of the Code since the International Financial Reporting Standards were adopted as the basis for public sector accounting in the UK. This Code has been developed by the CIPFA/LASAAC Local Authority Code Board and has effect for financial years commencing on or after 1 April 2011.

The Code specifies the principles and practices of accounting required to prepare a Statement of Accounts which gives a true and fair view of the financial position and transactions of a local authority.

For further details and to order your copies please visit the CIPFA Shop.

Scottish Local Authorities (LASAAC) Questions and Answers Sheet on OSCR Requirements

Following the attendance of an OSCR (Office of the Scottish Charity Regulator) representative at LASAAC, a ?questions and answers? paper has been developed to summarise the issues discussed. This is intended to be of assistance to Scottish local authorities when considering OSCR?s requirements.

To see the paper, please click here.

LASAAC Mandatory Guidance on Council Dwelling Valuation Methodology

LASAAC has issued formal guidance that by 2015/16 at the latest the valuation of Council Dwellings must be achieved using a Beacon Approach (Adjusted Vacant Possession) methodology.

To see the formal guidance, which also explains the background to this requirement, please click here.

LASAAC Clarification on STO ?Break Even? Statutory Target Under IFRS ? Illustrative Example Supplied

LASAAC has concluded that the Significant Trading Operation ?3 year break-even? requirement should be assessed using the existing UK GAAP/SORP based figures for 2008/09 and 2009/10 with no restatement required. It was confirmed that no statutory mitigation applied to the statement of IFRS based results for 2010/11. LASAAC has prepared an illustrative, non-mandatory, disclosure note for the assistance of authorities.

To see the illustrative example and an explanation of the LASAAC conclusion please click here.

LASAAC 2009/10 Annual Report

To download a PDF version of the 2009/10 LASAAC Annual report, published in June 2010, click here.

Statutory Guidance & Illustrative Examples re Accounting For PFI and Similar Contracts

A significant change in the Local Government SORP 2009/10, which specifies the accounting requirements for local government organisations, relates to the treatment of PFI schemes and similar contracts. For 2009/10 where certain criteria are met assets provided under a PFI or similar scheme are to be brought onto the balance sheet, with a corresponding liability reflecting the long?term commitment to pay for the asset.

The Scottish Government has recognised the potential consequences on local government finances of this change and has issued statutory guidance to ameliorate the impact on fund balances.

Key points of the statutory guidance include:

Prior Year Adjustments

The guidance seeks to, as far as possible, neutralise any impact on General Fund, Capital Fund, Insurance Fund and Repair & Renewal Fund balances. For prepayments related to the purchase or construction of the asset where funding has not been explicitly identified, a formal funding arrangement is now required. The guidance allows an advance from the Loans Fund to be used for this purpose.

Statutory Charge for the Repayment of Debt

Depreciation and impairment will not be charged against the General Fund. Instead a charge for the repayment of debt (the liability related to the purchase of the asset) will be made. The guidance details how this is to be calculated. The calculation can differ where the organisation elects to account for lifecycle capital expenditure by creating a prepayment.

Statutory Charge for Lifecycle Replacements ? Capital Expenditure

Lifecycle capital expenditure arising under the contract is to be charged against the General Fund when the work undertaken is recognised as an asset on the balance sheet. The guidance details how this is to be calculated.

It should be noted that where an organisation elects to account for lifecycle capital expenditure by creating a prepayment, the creation of the prepayment is not a charge against the General Fund. A charge to the general fund is only made when the prepayment is released. In this situation the profile of charges to the General Fund over the contract life may differ from that originally envisaged. Organisations are encouraged to set aside funding, for example in the Repairs & Renewals Fund, to support the eventual release of the prepayment.

Debt Restructuring

From 1 April 2010 if an organisation recognises a one?off gain in its Income & Expenditure Account from a PFI debt restructuring / re?financing, the gain is not to be credited to the General Fund. Instead the Financial Instruments Adjustment Account is to be credited, with the gain being released to the General Fund over the remaining contract period.

The treatment of gains prior to 1 April 2010 is not affected by this.

Donated Assets

Deferred income, for example arising from situations where the lifecycle capital expenditure of an item is greater than that originally planned, is to be amortised over the asset life. This amortisation is not to be recognised as a gain to the General Fund but is to be treated as a deferred grant matching depreciation and impairment (i.e credited to the Capital Adjustment Account).

Statutory Charge for the Repayment of Finance Leases

The guidance also formalises the required treatment of finance leases. Depreciation of the related assets is not to be charged against the General Fund. The liability repayment (or principal element) of the finance lease charge for the year is to be charged against the General Fund.

Application of Capital Receipts

After transition capital receipts are not to be used to repay the long?term liability or statutory charge associated with either finance leases or PFI and similar schemes.

The above is provided as an outline summary. Organisations should consult Finance Circular 04/2010, which contains the statutory guidance, for further details.

To view the Finance Circular click here.

Illustrative Spreadsheet Examples

In order to assist practitioners LASAAC has developed some illustrative examples of the application of some sections of the statutory guidance.

To view the illustrative examples click here.

LASAAC Responds to CIPFA's Transport Infrastructure Assets Consultation

Following consultation with the Society of Chief Officers of Transportation in Scotland (SCOTS), LASAAC has responded to CIPFA?s consultation on a draft Transport Infrastructure Assets Code.

The response is broadly supportive of the draft code and:

suggests some alterations to the draft code notes that it does not cover all transportation infrastructure assets;
notes that feedback from SCOTS suggests that additional implementation and managements costs should be minimal;
notes that there is scope for increased audit costs, with the extent dependent on various factors including the level of assurance sought.

The response can be seen here: Response to CIPFA's Transport Infrastructure Assets Consultation

To see CIPFA's consultation documents click here: CIPFA consultation documents

Due Date for Responses

Responses are requested by Friday 29 January 2010 by e?mail using the response form supplied. Please submit to lasaac@cipfa.org.uk

LASAAC is aware that budget setting processes for 2010/11 will be the main focus of attention for many organisations and staff however responses would be appreciated from as many organisations as possible to ensure that all potential funding impact issues are identified.

The paper can be downloaded here:IFRS: statutory intervention paper

The response form can be downloaded here:IFRS: statutory intervention response sheet

Technical FAQs
The CIPFA in Scotland website includes a technical FAQ section. Dedicated to Scotland, it provides a range of model answers to technical questions enabling practitioners to speedily access technical accounting advice. Click here to access the section.