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SARAH CALKIN, EDITOR
05 October 2022
Ensuring key messages can be understood by users of financial statements and other stakeholders is crucial, writes the standard setting manager at the Chartered Institute of Public Finance & Accountancy.
Accountability and transparency are important parts of good public financial management. Ultimately, the public sector must serve the public and make decisions that are in their best interest. Local authority financial statements can provide reassurance that the public sector’s financial management is robust and effective.
Sarah Sheen, standard setting manager at Cipfa
Recently, questions have been raised about the current crisis in local audit and delays in the publication of audited financial statements. Cipfa chief executive Rob Whiteman also highlighted the issues around infrastructure asset reporting in his previous article for LGC. All these factors have caused delays, which may have a negative impact on the accountability and transparency of the public sector.
These problems are one of the factors considered in Cipfa’s current consultation on the 2023-24 local authority accounting code. The consultation aims to provide a stable platform for the 2023-24 code and local authorities should be reassured that only necessary technical changes will be taken forward.
Possible changes may include amendments that clarify the treatment of changes in accounting estimates and the disclosure of material accounting policies. Other amendments being considered are in relation to future reporting for the accounting requirements of insurance contracts.
It might appear local authority financial statements are overly complicated but… they are largely comparable to the rest of the public sector
The code consultation also looks at the importance of local authority financial reporting and how the code can support local authorities in communicating key messages to the users of the accounts. Cipfa Lasaac’s strategic plan discusses various approaches to addressing this and also examines the impact of environmental issues on local authority financial statements and sustainability reporting.
Much has been said about the complexity of local authority accounts. However, local authorities have many responsibilities and are vital for supporting the local community, so their transactions are often not simple to record and present. Accountability is critical, so the key risks relating to these transactions must be clearly reported.
In addition, local authority financial statements feed into the whole of government accounts, which is one of the reasons why they are based on international financial reporting standards (IFRS). It might appear that local authority financial statements are overly complicated, but from an accounting perspective, they are largely comparable to the rest of the public sector.
As sovereign bodies, local authorities have tax-raising powers. They must consider the interaction of the accounts with the requirements for setting council tax. They also need to demonstrate annual accountability and financial performance against these specific requirements.
A core financial statement brings together IFRS and financial performance against statutory reporting requirements. It shows how the authority has generated and expended resources in the year. It demonstrates how the resourcing position is adjusted under statutory rules to show the funds available to be spent at the end of the year. This information is essential for effective decision making.
In terms of accountability, local authority financial statements are an important way to tell council tax payers about the financial performance, financial position and cash flows of the authority. Local authority accounts hold a wealth of useful information for key stakeholders, such as:
As mentioned in the consultation, Cipfa is establishing a permanent financial reporting working group to help local authorities communicate with users of the accounts. The financial reporting hub will include representation from accounts preparers. The consultation also provides an opportunity to comment on what should be considered by the hub.
The financial statements are vital in terms of supporting long-term financial resilience. Ensuring that key messages can be understood by the users of the financial statements and other stakeholders is crucial.
Sarah Sheen, standard setting manager, Chartered Institute of Public Finance & Accountancy
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