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.
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.
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.
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