Response to DLUHC consultation on statutory override for infrastructure assets accounting

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.

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.

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

This consultation relates to a specific issue with the audit of council accounts relating to the valuation of infrastructure assets, that is assets that are used to deliver services but cannot be sold. Such assets include highways, footpaths, bridges, coastal defences, water supply and drainage systems. In our response to CIPFA’s urgent consultation on this issue in the summer we noted that this is an issue that adds to the problems being experienced by local audit. The issue does not arise from any recent changes to the code, and we agreed with the statement in CIPFA’s consultation document 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”. This view is repeated in the current consultation from DLUHC.

The practical practice of the last 25 years or so has not obviously caused any problems for general users of local authority accounts or for the provision of local services, and it is disappointing that this has now become a significant issue that has prevented the finalisation of many local authorities’ accounts. It is further disappointing that following that earlier consultation a full solution has not been agreed.

We therefore believe the intervention of the Government to introduce a statutory override, as is being proposed here, is a necessary step that has to be taken and it is one we support. We accept the proposal that the override is temporary in order to allow a permanent solution to be agreed by stakeholders. However, if stakeholders do not agree a satisfactory permanent solution by the time the 2024/25 accounts are being finalised, we call on the Government to extend the override permanently or until an alternative satisfactory solution is in place

Question 4: Is the wording sufficiently clear such that LAs using the override will not have to make any prior adjustments or revisit opening balances with respect to infrastructure assets (for the accounts where the override is first used)?

Yes.

Question 5: Is it clear that local authorities can then, if adopting option (2) (a) treatment in the SI, decide that any carrying or net amount of replaced component of an infrastructure asset or replaced part is ‘nil’ without further evidential requirement?

Yes

Question 6: Is it clear that local authorities may, by election, choose to either follow the CIPFA LASAAC issued Accounting Code OR follow the treatment allowed in the override?

Yes. We agree that this flexibility is required.

Question 7: Should the override apply until 2024/25? If no, please provide comments on what alternative timeframe should be adopted?

Yes. The override needs to be in place until an alternative satisfactory solution is in place. If such a solution is not in place by the time the 2024/25 accounts are being finalised, then we call on the Government to extend the override permanently or until an alternative satisfactory solution is in place.

Question 8: Is it correct that the override should apply to all accounts not yet certified?

Yes. The issue with infrastructure assets is new for the 2020/21 accounts and has only arisen in 2022, although the code has not changed in this respect since the 1990s. We trust that there will be no move to reopen accounts already certified; that being so, applying the override to accounts not yet certified should be sufficient. Alternatively, if there is a move on the part of auditors or regulators to reopen old accounts due to this issue, then we will call on the department and the Financial Reporting Council (FRC) as shadow system leader, to take whatever action is necessary to prevent it becoming an issue that prevents the finalisation of accounts.

Question 9: Are the definitions provided sufficiently clear and accurate?

Yes

Question 10: Will this have the effect of mitigating the infrastructure assets issue (in conjunction with the changes to the Code that remove the need for disclosure of gross costs and acc dep) such that the majority of accounts affected now and while the override is in place will not be further delayed due to the infrastructure assets issue nor be qualified due to the infrastructure assets issue?

Yes. We believe it does, however, if in practice delays still occur due to this issue, then as with question 8, we will call on the department and the Financial Reporting Council (FRC) as shadow system leader to take whatever action is necessary to prevent it becoming a new issue that still prevents the finalisation of accounts.

Question 11: Please only answer this question if you represent a local authority: Is your authority affected by the issues as outlined?

This is a question for individual councils to answer.

Question 12: Please only answer this question if you represent a local authority: If you answered YES to the last question, will the introduction of this override along with the changes proposed by CIPFA to the Code remove the barriers to accounts sign-off without qualification with respect to?

This is a question for individual councils to answer.

Questions 13 to 16 are for audit firms only.

Question 17: Do you have any other observations on the effectiveness of the override?

Please see the comments made in the general points section.

Bevis Ingram, Senior Adviser Finance

Email: [email protected]

• The Local Authorities (Capital Finance and Accounting) (England) (Amendment) Regulations 2022: call for evidence - Department for Levelling Up, Housing and Communities - Citizen Space