cipfa.org

What’s new on the technical accounting scene?Alan BerminghamPrincipal Consultant, CIPFA

cipfa.org

Reporting Service Performance Revisions to Consolidations Alignment CRC Scheme(IPSAS 6 to 9)

Conceptual Framework Emissions Trading Public Sector Locally (HMT/ CIPFA LASAAC)

Social Benefits Mergers Current Exposure DraftsPublic Sector International (IPSASB) Consolidations & J V's

SCA's Fair ValueGovernment Business Enterprises Pensions

Public Sector Combinations

Social Landlords

Combinations under common control Further & Higher EducationDiscounting Impact on SORP's (PBE's)

Internationally (IASB) CharitiesLiabilities Locally

Major IFRSsDisclosure Initiative New UK GAAP Framework - FRS 100, 101 & 102

Financial Instruments (IFRS9)Leases Periods beginning on or after 1 J an 2015

Emissions Trading Rate Regulated ActivitiesInsurance ContractsRevenue Recognition

What's new in Technical Accounting

cipfa.org

Session Objectives To raise awareness of key technical issues

To highlight areas of potential impact

To look at topics for further research and understanding

cipfa.org

New UK GAAPFRS 100 – Application of Financial Reporting Requirements

FRS 101 – Reduced Disclosure Framework

FRS 102 – The Financial Reporting Standard applicable in the UK and Republic of Ireland

Effective for accounting period beginning on or after 1 January 2015

cipfa.org

New Framework

cipfa.org

What should we consider? Impacts on SORP bodies and other Public

Benefit Entities (PBE’s)

Are we involved with bodies in the scope of the new standards Does this impact their financial position or

impact financial ratios or covenants? Are we grant giving bodies and need to be aware

of changes?

Do we need to consider wider supplier issues?

cipfa.org

IASB Projects and DevelopmentsProjects (Major IFRSs) New standard for Financial Instruments (IFRS 9) New Leasing Standard (replacement for IAS 17) Rate Regulated Activities Insurance Contracts Revenue Recognition

Other Research Emissions Trading Combinations under common control Liabilities (IAS 37) and Discounting

cipfa.org

Leases - Consumption Principle

cipfa.org

Recognition - Lessees

cipfa.org

Example - Lessees

cipfa.org

Other Projects and Research Rate regulation is a restriction in the setting of

prices that can be charged to customers for services or products

Generally, it is imposed by regulatory bodies or governments when an entity has a monopoly or a dominant market position that gives it excessive market power

Revenue - the objective of this project is to clarify the principles for recognising revenue from contracts with customers

It applies to all contracts with customers except leases, financial instruments and insurance contracts

cipfa.org

International - IPSAS Development of IPSAS Conceptual Framework Projects include:

Emissions Trading (also IASB) Revisions to IPSAS 6 to 9 – Resulting from IFRS 10,11,12 Public Sector Combinations Government Business Enterprises Social Benefits!

cipfa.org

Social Benefits Project The objective of the project is to identify the

circumstances and manner in which expenses and liabilities of certain social benefits of governments should be reflected in the financial statements

Why do this? – part of the issue of assessing long-term fiscal sustainability and the extent to which obligations under current frameworks can be met into the future

No real movement on this since 2012 and linked to completion of conceptual framework

cipfa.org

Public Sector Locally Current (2013) exposure drafts

Consolidation and Joint Ventures (IFRS 10,11 and 12) Fair Value Measurement (IFRS 13)

cipfa.org

IFRS 13 Fair Value Measurement Fair value is the price that would be received to sell

an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date – exit value

For non-financial assets the standard includes the principle of highest and best use

Fair value reflects constraints and restrictions

FReM adaptation proposed

cipfa.org

Proposed FReM Adaptation‘In use’ non-specialised property assets used to deliver services in a restricted geographic area as described by government policy should be valued at market value for existing use. This measure is a proxy for fair value.

cipfa.org

Are there any constraints or

restrictions on the disposal of the

asset?

Does the organisation have

clear evidence that it is constrained by

service needs to provide the asset in a particular location

or is the asset’s market restricted by

geographical limitations?

No - Route 1

Measure in accordance with the requirements of the standard ie at highest

and best use eg office accommodation

Do these constraints or

restrictions align with the restrictions in the standard (ie

either the asset has unique

characteristics or there are legal restrictions)?

Asset measurement at fair value limited to

current or existing use

Yes - Route 2

Yes - Route 3

Fair Value cost approach (or the income approach

as appropriate)

Measure at fair value limited to current or

existing use in accordance with the (proposed)

adaptation

Unique Characteristics

Restrictions

IFRS 13 Route-map for Property, Plant and Equipment

Yes

No

cipfa.org

IFRS 13 – Issues Need to assess which assets need to be measured

at ‘highest and best’ use

Revaluation required where current use is not highest and best

Also applies to liabilities

Disclosures – especially where no market evidence

cipfa.org

Group Accounts Suite of Standards IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosures of Interests in Other Entities IAS 27 Separate Financial Statements (2011) IAS 28 Investments in Associates and Joint Ventures

(2011)

Transitional Arrangements if there are changes in accounting policy (eg changes to consolidation decisions)

cipfa.org

Group Accounts Standards IFRS 10 Consolidated Financial Statements

Identifies control as the single basis for consolidation Returns include non-financial benefits and negative returns Consolidation process unchanged

IFRS 11 Joint Arrangements Classification of joint arrangements joint ventures and joint

operations Focus no longer on legal structure but on how rights and

obligations are shared by parties to the arrangement

IFRS 12 Disclosure of Interests in Other Entities New (consolidated disclosure standard) concerns about

disclosures for unconsolidated structured entities

cipfa.org

Any Questions?