Agenda Item No
The Vale of Glamorgan Council
Audit Committee: 24th September 2009
Report of the Director of Finance, ICT & Property
IFRS Implementation Update
Purpose of the Report
To update the Audit Committee on the latest position regarding the
implication of the introduction of the International Financial
Reporting Standards (IFRS).
That the Audit Committee notes the contents of this report. A
further report will be presented at an appropriate time in the
Reason for the Recommendation
To ensure issues relating to the changes in accounting practice are
highlighted to the Audit Committee.
As previously advised to Committee, the annual financial statements
of government departments and other entities in the public sector
are currently prepared using accounting policies based on UK
Generally Accepted Accounting Practice (UK GAAP).
In order to bring the benefits of consistency and comparability
between financial reports in the global economy and to follow
private sector best practice, the 2010/11 financial statements will
need to be prepared using IFRS, adapted as necessary for the public
sector. In order to achieve this, comparative data will be
required for 2009/10 thus allowing the necessary adjustments to be
made to the 2010/11 opening balances.
Initial proposed changes were advised to Audit Committee in January
Relevant Issues and Options
CIPFA has produced a draft code and is currently undertaking
consultation. The final code will be issued in Autumn
2009. Work has been undertaken by the Authority in relation
to the major areas of change and the following progress has been
Under IFRS, the method for classifying leases into “operating” or
“finance” will change. All of the Council’s leasing
arrangements need to be reviewed to ensure the correct
In order to achieve this, all departments, including Schools, have
been asked to provide details of lease agreements they have
arranged relating to equipment. From the replies received,
leases have been grouped according to the types of asset. A
de minimus of £40,000 total rental per annum has been set for each
asset group. The only asset groups that are above this level
are photocopiers and the new printers contract. A sample of
photocopier lease agreements, with a selection of suppliers, has
been obtained and they are in the process of being reviewed.
Details of all the authority’s leased vehicles has also been
obtained and is currently being reviewed.
There are 3 properties leased by the Authority, with an annual
rental of over £40,000. In order to be able to fully assess
these leases, the valuation of the property at the inception of the
lease, its residual value at the end of the lease and the economic
life of the property is required. Valuers are due to be
appointed later this year as part of the asset revaluation rolling
programme and they will be asked to provide the required
information on these properties as part of that appointment.
In addition, properties with an annual rental of under £40,000 will
be reviewed to determine the lease term. If the lease term
covers a long period, then valuers will also be asked to provide
information on these additional properties.
Under IFRS, component accounting will require that the different
elements of an asset are to be depreciated separately, if they are
significant in relation to the total cost of the asset e.g.
roof. This change does not have to be actioned
retrospectively. A revaluation of assets due to be undertaken
in 2009/10 will be considered for component valuation, though not a
requirement under existing rules.
10. Under IFRS, there
will be a requirement to accrue for holiday pay earned, including
flexi and time in lieu, but not yet taken as at 31st March each
year. There is an added complication for the Vale of
Glamorgan Council as some departments have staggered leave
11. Most school based
staff do not have a flexible annual leave entitlement and are only
able to take leave during the school holidays. A specific
formula has been agreed by CIPFA to calculate the leave accrual for
these staff. It is anticipated that this figure will be
12. With regard to other
employees, a sample of 10% of whole time equivalents (WTE) from
across the Authority, were asked to provide relevant information
regarding their annual leave. 191 replies were received from
the 197 questionnaires issued. It is anticipated that the
figure to be accrued will be lower than that for school based
13. Guidance on how to
treat the above two accruals in the accounts is currently being
14. IFRS requires
increased disclosure in the notes of the accounts to provide
information on reportable segments, based on the authority’s
internal reporting. A segment’s expenditure must be 10% or
more of the gross expenditure or income within the net cost of
services. These segments must total at least 75% of the
expenditure within the net cost of services. Having reviewed
the format of financial information provided to Cabinet, it is
considered that the segments that could be used should be based on
directorates, with smaller directorates being
15. Following completion
of the work already outlined above, the opening 2009/10 balance
sheet will have to be restated to an IFRS basis. The
authority’s financial statements will need to be reviewed, as the
2010/11 accounts will have to be presented in a different format,
with additional notes and disclosures.
16. There is a proposal
that an all Wales Chief Accountants group is set up so that
officers can discuss issues and share experiences. Throughout
the implementation, discussions will continue to be held with the
authority’s external auditors.
Resource Implications (Financial and Employment)
17. In order to avoid
additional costs, the authority has started work on the
implementation at an early stage, however it should be noted that
the implementation will take up a considerable amount of officer
Legal Implications (to Include Human Rights Implications)
18. The Council must
ensure that it produces financial statements which comply with all
relevant accounting standards.
Crime and Disorder Implications
19. None as a direct
consequence of this report.
Equal Opportunities Implications (to include Welsh Language
20. None as a direct
consequence of this report.
21. Reliable Financial
Statements assist the Council in managing its assets more
efficiently and thereby promotes the achievement of the Council's
aims in respect of Corporate Resources.
Policy Framework and Budget
22. This report is in
accordance with the Policy Framework and budget.
Consultation (including Ward Member Consultation)
23. No further
consultation is proposed.
Relevant Scrutiny Committee
Draft IFRS documentation
Carolyn Michael - Accountant
External Audit Manager – Grant Thornton UK
Sian Davies, Director of Finance, ICT &