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LGA response : CIPFA Survey – “Impact of the Move to Improve the Reporting of Infrastructure Assets including a (possible) move to a Depreciated Replacement Cost Measurement Basis”.

This response has been cleared by the leading members of the LGA’s Resources Board.

About the Local Government Association

1.    The Local Government Association (LGA) is the national voice of local government. We are a politically led, cross party membership organisation, representing councils from England and Wales.

2.    Our role is to support, promote and improve local government, and raise national awareness of the work of councils. Our ultimate ambition is to support councils to deliver local solutions to national problems.

3.    This response has been cleared by the leading members of the LGA’s Resources Board.

Valuing Infrastructure Assets under Depreciated Replacement Cost

4.    The audit and valuation of infrastructure assets has made a significant additional contribution to the delays in finalising the audit of local authority accounts and made a significant contribution to the current crisis in local audit.

5.    The LGA is supportive of the arrangements put in place by CIPFA and DLUHC to provide a temporary solution until 2024/25. In our response to the 2022 consultation from DLUHC on the statutory override we supported the action being taken. We also called on the Government to extend that override if a satisfactory permanent solution is not in place by the time the 2024/25 accounts are being finalised, and to make this permanent or until such time as an alternative satisfactory solution is in place.

6.    We noted and agreed with CIPFA’s earlier statement that “Accounting for infrastructure in local government has not historically been considered to be an area of significant audit risk, due to the inalienable nature of the assets”. Any long-term approach to the way infrastructure assets are valued must be proportionate and take account of this. Such figures can never be more than notional.

7.    This survey issued by CIPFA is clearly aimed at individual councils and practitioners and therefore the LGA is not a position to answer the individual questions. However, we note with concern that the survey states that “authorities should assume that the longer-term approach will be based on a Depreciated Replacement Cost basis”. We strongly feel that this is not the right approach and we want to register our concern and urge CIPFA LASAAC to recommend an alternative and more practical approach. 

8.    The LGA’s Resources Board considered this issue as part of our response to HM Treasury’s Thematic Review of Non-investment Asset Valuation for Financial Reporting Purposes and concluded that such an approach will cause significant problems and additional costs for councils and would also not help with solving the current crisis in local audit. Discussions with our core adviser Chief Finance Officers have reinforced this view.

9.    Paragraphs 15 – 17 of our response to HM Treasury outlines our concerns in more detail, the problems that a move to Depreciated Replacement Cost for these assets would cause and also why it is not necessary. It is worth quoting these in full:


15.    There is a lot of important and useful financial information that relates to these assets and their condition and this is used to manage their maintenance and use. It is hard to see that the published accounts is the right place for such information. It should be reiterated that, certainly in the case of local authorities, networked assets cannot and will not ever be sold. The value placed on them will not significantly impact on any decision making (unless in a negative way by skewing the view of other items in the accounts – see below). The value placed on them in the accounts as a financial asset of the local authority can never be more than a notional figure, no matter how sophisticated the measurement process. Therefore, the measurement needs to be as simple as possible and one that is unlikely to be disputed or lead to additional and unnecessary work by accounts preparers and auditors. Unfortunately, DRC is unlikely to meet either of these criteria and we call for this to be reconsidered.

16.    Using DRC will have at least two negative impacts. 

i.    Firstly, it will mean that a great deal of time and effort will be spent producing a figure that will have no real meaning but will still need to be subject to audit. This will mean significant extra costs being incurred by councils as well as potentially adding to audit delays.

ii.    Secondly, it is expected that the application of DRC to highways assets will mean a massive increase in the (notional) value of these assets reported in the final accounts. Some local authorities expect that this will mean that the figures will exceed the value of all other assets in their accounts. This will significantly distort the figures and give a highly skewed picture of the finances of the local authority. It is possible to expect a scenario where figures for other areas that actually matter are masked or lost amongst these excessive values. This cannot be seen as high-quality financial reporting.

17.    There needs to be change in how figures relating to infrastructure assets in the published accounts are viewed.  Accepting that the figures in local authority final accounts for values of infrastructure assets can never be more than notional will enable a more radical and realistic approach to be taken. For example, the valuation of local authority infrastructure assets could be undertaken on a standard cost basis – such as a standard value for each mile of road. This would then mean that the value in the accounts would be easy to calculate, easy to audit and it would be based on real service information that should already be in the accounts.  Depending on the standard value used the figure itself could be set so that is does not distort the view of the finances of the local authority (although as a notional figure it might be better to report it separately). More importantly it would not hold up the process of auditing the accounts. It would also facilitate comparisons between the figures reported by different local authorities. 


10.    We urge CIPFA / LASAAC to reject consideration of the adoption of Depreciated Replacement Cost as a valuation basis for local authority infrastructure assets, and to consider a practical and pragmatic approach instead.

Contact: Bevis Ingram

Senior Adviser Finance

Email: [email protected]