Clearer council accounts would give assurance about an essential element of the devolution agenda, writes the director of finance and resources at Maidstone BC and vice-chair of the local authority accounting code board of the Chartered Institute of Public Finance & Accountancy (Cipfa) and Local Authority (Scotland) Accounts Advisory Committee (Lasaac).
Mark Green, director of finance and resources at Maidstone BC
The government’s devolution agenda envisages a comprehensive rewiring of the state, giving power to local leaders and providing the mechanisms to make them accountable to the residents who elect them.
The government’s agenda is supported by recent proposals from Cipfa for local authority accounts to show exactly how councils have fulfilled their financial responsibilities, in the form of an accountability report.
For some time, Cipfa and the government have been looking at how to simplify local authority financial reporting, recognising that better quality accounts are an essential starting point for strong local accountability. The proposed mechanism for change is the local authority accounting code prepared by the Cipfa/Lasaac board, which adapts international financial reporting standards (IFRS) for the local authority context.
The latest annual invitation to comment (ITC) on code updates, published on 20 July, sets out a strategic plan to bring greater clarity, relevance and focus to local authority accounts.
This is the culmination of many years during which the consistent demand from accounts users has been for simplification of the accounts. Sir Tony Redmond, in his 2020 review of local audit, described local authority accounts as ‘impenetrable’.
Impenetrable accounts
Whilst the ITC has been in preparation for several months, it is a happy coincidence that it has been published at the same time as the cabinet’s proposals for devolution.
The strategic plan in the ITC includes two significant specific proposals for reform – a new accountability report to be prepared by all local authorities, and a simplification of pensions accounting.
Users would be able to see the information clearly and be confident the figures are reliable
Currently, local authority accounts do not provide the information needed to show how a council has performed against its budget in a succinct or accessible way. The problem is that they present the figures in a mixture of two different ways: one to comply with accounting standards, and one to meet the statutory requirement to show the figures used when setting a budget.
The result is a set of accounts that is impenetrable to most readers.
The proposals in the ITC would end this by introducing an accountability report, presenting income and expenditure on a statutory or funding basis, as when the council sets a budget. The accountability report would compare actual outturn figures with the budget set by the council at the beginning of the year, allowing the council’s elected leaders to be held to account for performance.
It would sit alongside, but reconcile to, IFRS-compliant financial statements. This in turn would allow the core IFRS financial statements to be simplified.
Much of the information in the accountability report is already published by local authorities, but by requiring it to be included in the audited statement of accounts, users would be able to see the information clearly and be confident the figures are reliable.
The accountability report would follow a standard format, thus enabling comparison between councils. I envisage that the data in the reports could be flagged digitally, which would enabling them to be collated in the same way as company financial reports are at Companies House, facilitating cross-sector analysis.
Pensions accounting
The proposals in the ITC also address pensions accounting, which contributes one of the knottiest and most impenetrable parts of a standard local authority set of accounts.
Pensions accounting is currently governed by the international financial reporting standard IAS 19, which was developed primarily for the private sector and does not reflect the highly regulated framework of the Local Government Pension Scheme.
All of this makes the 2027-28 code consultation one of the most important in recent years
It requires liabilities to be reported based on the yields from high quality corporate bonds, which are quite different from the performance generated by the investment strategies of local authority pension funds. The result is that unnecessary volatility is introduced into the accounts and extensive notes are required to explain the IAS 19 figures.
Cipfa/Lasaac considers that accounting for pensions on a defined contribution basis, as in central government, would better reflect the local authority context, and would simplify the accounts for users and preparers.
The programme outlined in the ITC also encompasses infrastructure assets, improvements to narrative reporting, the structure and format of the code, and sustainability reporting.
As well as taking a broad view of the strategic changes needed to local authority accounting, the ITC contains, as usual, specific proposals for the coming year. All of this makes the 2027-28 code consultation one of the most important in recent years.
The Cipfa/Lasaac board is seeking comments on the draft code, with a deadline of 27 September 2026.
As with any rewiring, the government’s rewiring of local government will require attention to detail and assurance about the reliability of the components. By making local authority accounts simpler and clearer, an essential element of the devolution agenda can be assured.
The Cipfa/Lasaac board’s invitation to comment is a first step to making this happen.
Mark Green, director of finance and resources at Maidstone BC; vice-chair of the Cipfa/Lasaac local authority accounting code board
The 2027-28 code consultation can be found at Consultation on the 2027-28 Code of Practice on Local Authority Financial Reporting in the United Kingdom