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Executive Summary

The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to comment on the Code of Practice on Local Authority Accounting in the United Kingdom - a Statement of Recommended Practice 2004 (the Invitation to Comment). These comments have been prepared in consultation with members of ACCA's Public Sector Technical Issues Committee, a group of experienced accountants working in the public sector.

ACCA is in agreement with the majority of the recommendations contained in the Invitation to Comment and we consider that the guidance proposed to be included in the revised SORP should enable local authorities to prepare, when appropriate, group accounts which are largely in compliance with UK Generally Accepted Accounting Practice.

The CIPFA/LASAAC Joint Committee is the body which is recognized by the Accounting Standards Board as the SORP- setting body and is also the body recognized in legislation and statutory regulation. Thus it is unclear why there is a reference to the CIPFA Public Finance Management Board in paragraph 2.1 of the Invitation to Comment.

Specific Questions Raised in the Invitation to Comment

We have included below only comment on those questions for which we have any substantive opinion.

Group Accounts

Q2 Do you agree with the flowchart and definitions and are they sufficient to be able to implement the proposals for financial reporting purposes?

1. Yes. ACCA agrees that this guidance should be sufficient. We believe it would be useful for the SORP to be explicit that the grounds of materiality should be considered at a service level as well as at the level of the authority as a whole.
   

2. ACCA also believes that it would be useful to indicate (at Annexe B to the new Chapter 5) those statutory bodies which are not to be consolidated directly into Whole of Government Accounts, for example, housing associations and educational institutions.
   
   Capital Accounting Review

3. ACCA agrees with the proposal, from the March 2003 Workshop, on the removal of the notional interest rate element of capital charges. Thus we would be interested to know what particular additional research is being proposed and whether this research will be completed in time for the proposed changes to be included in the 2005 SORP.

   Q14 Do you agree with the Joint Committee�s proposals in relation to the change of the names of the two non-distributable reserves set out at paragraphs 3.6 and 3.8 of the ITC (paragraphs 3.108-9 of the draft SORP amendments, Appendix B)? If not, why not?
   

4. ACCA agrees with the proposed changes, but notes that they have not been used in the sample set of group financial statements included at Appendix E of the Invitation to Comment.

   SSAP 21 Accounting for Leases and Hire Purchase Contracts
   

5. ACCA considers that, given the proposed changes to accounting for leases, now would be an opportune time to undertake research into accounting for Private Finance Initiative (PFI) projects by local authorities and the extent to which the associated assets and liabilities are recognized in their accounts. ACCA believes that assets made available through PFI contracts should normally be accounted for in the same way as assets obtained under a finance lease. ACCA believes the Joint Committee should consider revising Appendix F of the SORP to require local authorities to justify any non-recognition of assets obtained through PFI-type contracts.
   
6. The Invitation to Comment notes (paragraph 2.3) that "recent accounting scandals have focused attention on this area and highlighted the reputational risks that arise from off-balance sheet finance in general". The implication of the growing number of PFI projects for local authorities does not appear however, to have been reviewed in the light of this recent adverse publicity.
   
   FRS 17 Retirement Benefits
   
   Q19 Do you agree with the Joint Committee�s approach to the discount rate for liabilities i.e. to move to the AA Corporate Bond Rate as specified by the Standard?
   
7. ACCA agrees with the Joint Committee�s approach to the discount rate for pension liabilities. ACCA believes, however, that further consideration should be given to this change. In its argument for adopting the current rate the Joint Committee stated last year that it had "proposed this rate in order to promote comparability across the public sector, aligning it with the rate determined by the Government Actuary�s Department (GAD) and adopted by the Treasury for central Government departments". Given the moves towards Whole of Government Accounts and the confirmation that local authorities are to be included, it would appear that the argument for consistency with central Government has increased in strength over the last year.

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