Essex County Council understood the need to adopt IFRS 16. However, with over seven hundred leases and five PFI schemes, the council recognised that implementation would be demanding. The council therefore engaged us to support its transition.
The challenge
The agreed scope of work focused on evidencing completeness of the council’s lease records, validating lease assessments, PFI modelling, key accounting judgements, financial statement disclosures and checking outputs from the new leases’ software.
The solution
We engaged extensively with the council’s finance team throughout, to ensure it was able to implement the requirements of the standard correctly and to the required timescales. We provided the working papers and documentation for all the work and assessments it completed, which the council has provided to its external auditor as evidence of this and the judgements reached.
We provided the council with flexible support for the implementation of IFRS 16, working alongside the council to respond quickly to evolving requirements, and without being constrained by the agreed scopes of work. This meant we were able to provide support in the areas of most value to the council and share knowledge to its finance team, to support future sustainability.
We supported the council predominately across four main tranches of work:
Completeness and lease assessments
Performing assessments of property and vehicle leases against the indicators as set out in IFRS 16, as well as the practical expedients of the Code of Practice on Local Authority Accounting, to support conclusions drawn by the council on existing lease arrangements. Also, extensive completeness exercises were undertaken, drawing on data sources not previously considered by the council in its own processes, to ensure a robust capture process for all leases upon transition.
PFI models
A walkthrough was undertaken of existing processes and controls for PFI models and a determination made as to the adjustments required upon transition to IFRS 16. Our modelling team updated the council’s existing PFI models, as well as providing key outputs, including revision of existing liabilities under IFRS 16, measurement as at reporting dates, transition disclosures and key financial statement outputs.
Accounting judgements
Review of the key accounting judgements of the council, including low value, short-term and the grandfathering approach, and to consider holding over leases, tenancies at will and rolling license arrangements. Assessments were also undertaken of whether the provisions of IFRS 16 needed to be applied in respect of the council’s employee car leasing schemes (in terms of whether the council was acting as principal or agent according to IFRS 15 principles), and of nil consideration embedded leases and break clauses.
Financial statement disclosures
Provision of a template complying with all requirements of the Code, in order for the council to produce robust disclosures for their financial statements.
Throughout the process, we provided technical accounting expertise in order to review documentation produced by the council, as well as ensuring that working papers produced were to a standard that would satisfy external auditors. We focused on knowledge transfer that provided critical learning to the council’s finance team.
The result
The council valued the flexibility and collaborative nature of the support we provided, which ensured that our input was targeted in the right areas, given the other priorities of the council’s finance team.
The help we provided allowed council officers to manage the transition to IFRS 16 alongside the other work necessary to prepare the council’s financial statements for 2024/25, while also ensuring knowledge transfer on the impacts of transition to the new standard and identifying ways in which processes can be improved.
"From the outset, Grant Thornton recognised the disparity between our aspiration to implement the requirements of IFRS 16 to a high standard, and our capacity to do so. Grant Thornton also appreciated that we did not just want somebody to come in and implement the standard for us, and that it was important to us that we implemented this complex accounting standard together.
The approach Grant Thornton took to supporting the Council was highly collaborative and supportive, from start to finish. Time was invested time up front, to help the Council to initially scope and agree our overall requirement, while giving us the flexibility to refine it subsequently, to ensure we prioritised Grant Thornton’s input to the areas that would have the biggest impact or benefit. And the Grant Thornton team genuinely did feel like an extension of the Council’s own finance team during the delivery phase of our IFRS 16 implementation journey, with two-way discussion, information sharing and constructive challenge throughout, on all aspects of the implementation.
Given our capacity constraints running into the 2024/25 Accounts Closure period, the support provided by Grant Thornton was exactly what we needed, as it provided the right mix of technical expertise, capacity, collaboration and challenge, while also ensuring that our own finance team was a key part of the implementation process as well."
Essex County Council
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