Local authority accounting: Avoiding pitfalls in financial instruments

Many local authorities are making more use of a variety of different financial instruments, including a wider range of different types of investments, loans to other parties and borrowings. It's critical that authorities fully understand the implications of the CIPFA Code of Practice on Local Authority Accounting. 

Where the required accounting isn't fully understood, authorities may enter into arrangements without a full appreciation of the implications – which can in some cases include consequences for the General Fund. There are also risks that the accounting treatment may be incorrect, resulting in errors in the Statement of Accounts. A fuller understanding of the requirements can also enhance the quality of local authority accounts, ensuring that readers can understand the impact of financial instruments, as well as the related risks and how to manage them. 

Financial instruments and local government accounts

Our report explains some of the potential pitfalls relating to financial instruments which can occur in local authority accounts. In each section you'll also find a range of challenge questions to consider. 

Download the report [2521 kb]

What's in the report?

Identification of financial instruments 

• Key pointers about the importance of the correct identification of items which are within the scope of financial instruments accounting requirements, and those which aren't

• Illustrative scenarios highlighting examples of complex situations which can result in incorrect accounting if not fully understood 

Classification of financial instruments 

• Reminders about the key requirements for classification of financial assets and financial liabilities 

• Illustrations of situations that may be less straightforward to assess 

Measurement of financial instruments 

• Key pointers about the measurement requirements for amortised cost, fair value, and the recognition of impairment 

• Example scenarios showcasing some of the complexities that can arise 

Financial instrument disclosures 

• Reminders about the purpose of financial instrument disclosures 

• Some of the common pitfalls to avoid 

Local authority statutory accounting 

• Reminders of the key statutory accounting requirements applicable to financial instruments 

For more insight and guidance, contact John Farrar.