Audit Commission fires warning over failure to prepare for new accounting regime
One in five local authorities are “having serious difficulties” in preparing for a new code of practice on local authority accounting for 2010/11, leaving them open to significant reputational damage, the Audit Commission has warned.
Legal teams are among those departments with a key role to play in ensuring a smooth implementation, it added.
In its report Countdown to IFRS, the Commission said just one in seven local authorities, fire and rescue authorities and police authorities were on track to prepare their financial statements based on International Financial Reporting Standards under the new Code of Practice on Local Authority Accounting.
It warned: “A failure to achieve successful transition to IFRS would cause significant reputational damage to individual local authorities and the local government sector as a whole. Poor preparation will heighten the risk that accounts will not meet requirements and so attract a qualified auditor’s opinion or be published late.”
The Commission added that at a practical level, there was a risk that extra and unnecessary costs will be incurred.
It said local authorities needed to satisfy themselves that proper arrangements are in place to manage the project. In particular councils should:
- Develop and maintain a detailed project plan, including a budget and resource plan
- Conduct a detailed impact assessment
- Engage the wider organisation “because IFRS is not just a finance issue”
- Ensure that their audit committee, or equivalent, is aware of the implications of IFRS – the Audit Commission’s research suggest that many are not, and
- Begin a dialogue with their external auditor on the authority’s plans and progress, and the issues arising.
Nearly a third of authorities had not yet started discussions with their external auditors by the time of the survey, the Commission revealed.
It said one of the principal lessons learned from the NHS and central government experience in implementing IFRS was that the regime affects all parts of an organisation.
The report said: “To succeed, the change must be embedded across the wider organisation, involving people at all levels. It is not just a finance issue: corporate direction is essential.
“Departments such as finance, internal audit, estates, IT, human resources and legal have key roles to play, and this needs senior management involvement and leadership. Experience suggests that if the transition is not supported by senior management and an organisation-wide approach is not taken, IFRS implementation will be disjointed, take longer than necessary and be more expensive.”
The process may lead to the incurring of costs, but the Commission said some benefits have been identified, such as a better understanding of contractual and lease commitments, more accurate accounting for fixed asset components, and better employee benefits data.
