Source · Select Committees · Housing, Communities and Local Government Committee
Recommendation 22
22
Deferred
Paragraph: 109
Statutory overrides, namely requirements introduced by legislation that override standard accounting practice, are not aligned...
Conclusion
Statutory overrides, namely requirements introduced by legislation that override standard accounting practice, are not aligned with the intended purposes of local authority accounts. Some statutory overrides can be beneficial by reducing the complexity of the accounts, but many add new requirements to the disclosures in the accounts. Additional requirements in the accounts added by statutory overrides do not contribute to the value or usefulness of those accounts, but they make the accounts more complex, less understandable, and thus less useful for supporting local democracy and accountability.
Government Response Summary
The government recognises that statutory overrides can add complexity to accounts and commits to reviewing existing overrides and relevant legislation to ensure their value outweighs complexity. However, this review will be deferred until after the audit backlog is cleared.
Paragraph Reference:
109
Government Response
Deferred
HM Government
Deferred
Local Authorities are required by statute to produce and publish a set of accounts for each financial year. The accounts must be produced in accordance with ‘proper practices’, which is defined in the Local Government Act 2003 and its Regulations as the ‘Code of Practice on Local Authority Accounting in the United Kingdom’ as published by CIPFA along with any practices required by legislation. Since 2010, the Code has been based on International Financial Reporting Standards (IFRS). There are various accounting practices set out in statute for local authority accounts. Generally, legislative provisions are there for one of two main purposes: firstly, to establish the separation of capital and revenue which is a fundamental component of the local authority finance system; secondly, as legislation introduced in response to risks or issues specific to the sector (referred to as “statutory overrides” as they override the normal accounting practices set by the Code). Statutory provisions are only used to set accounting practices when the Department considers that they may be required. We have previously consulted with the sector and key stakeholders, including auditors, FRC and CIPFA, before introducing any such overrides. The government, however, does recognise that this can add complexity to the accounts, and will undertake to review the existing overrides to ensure that their value is not outweighed by the additional complexity they place on local authority accounts. The Department will also review all relevant legislation that places requirements on the content and format of accounts as per the Committee’s recommendation. However, given the work to clear the backlog this will not be the immediate priority and this review will form part of the Department’s work to ensure the system is on a more sustainable footing for the long-term. In the interim, CIPFA is currently assessing whether the reporting requirements could better present the statutory adjustments from accounting standards that are required for council tax setting. This is an area which does add complexity and requires additional explanation. This will be subject to review by the CIPFA Better Reporting Group.