UK Government Extends Crucial Accounting Measures for Local Authorities

In a move to bolster local authority finances, the UK Government has amended the Local Authorities (Capital Finance and Accounting) (England) Regulations 2003. This change, effective through the new 2025 regulations, extends pivotal accounting measures until 2029, aimed at stabilizing financial reporting practices amidst ongoing challenges.

Key Changes Explained

The regulations primarily adjust two significant areas:

1. Fair Value Gains and Losses on Pooled Investment Funds: Initially introduced in 2018, regulation 30K allowed councils to bypass certain International Financial Reporting Standards (IFRS 9) requirements. This was to prevent abrupt financial strain due to fluctuating investment values. Originally set to expire in 2023, then extended to 2025, this regulation will now continue for existing investments until 2029. However, new investments from April 2024 must adhere to IFRS 9, ensuring a gradual shift towards full compliance.

2. Accounting for Infrastructure Assets: Regulation 30M, introduced in 2022, addresses accounting issues related to infrastructure assets such as highways and bridges. It provides a simplified approach to overcome audit delays caused by insufficient historical data. This regulation, crucial for timely financial reporting, is also extended to 2029.

Why the Extensions?

The extensions respond to concerns from local authorities about the financial and operational impacts of reverting to full compliance with IFRS 9 and traditional accounting methods. Consultations showed significant support for maintaining these measures, with 87% of respondents favoring the continuation of the infrastructure asset override.

Implications for Local Authorities

Local authorities will benefit from additional time to align their accounting practices with the updated standards without immediate financial disruption. This is particularly relevant for investments and infrastructure management, where historical data deficits have previously hampered audit processes.

Looking Forward

The government aims to use this extension period to develop long-term solutions for the challenges in local authority audits and accounting practices. While no formal guidance will be issued, the Chartered Institute of Public Finance and Accountancy (CIPFA) will continue to provide relevant updates through its Code of Practice.

In summary, these regulatory amendments are designed to provide local authorities with breathing room to adapt to new financial reporting standards, ensuring stability and continuity in public financial management.