NHS trusts and foundation trusts. Trust Accounts Consolidation (TAC) schedules: Completion instructions month /19

Transcription

1 NHS trusts and foundation trusts Trust Accounts Consolidation (TAC) schedules: Completion instructions month /19 December 2018

2 To: NHS trust and NHS foundation trust finance teams Wellington House Waterloo Road London SE1 8UG E: December 2018 Dear Colleagues This document accompanies the release of the Trust Accounts Consolidation (TAC) schedules for month /19. This is the second year of the schedules being used, so this guidance has been revised. It now concentrates on explaining what has changed from the prior year, rather that introducing how the form works. Two important new accounting standards apply for the first time in 2018/19: IFRS 9 on financial instruments and IFRS 15 on revenue from contracts with customers. Both are being applied from 1 April 2018; comparatives are not being restated. This means it s really important that providers complete the TAC schedules in a specific order this year. Please do read section of this document which explains this. This guidance is laid out as follows: - Chapter 1 explains how the TAC schedules fit into the Provider Finance Return (PFR) form and lists the TAC disclosures that can be omitted at month 9. - Chapter 2 explains the key changes to the form compared to last year. - Chapters 3 and 4 then work through the new and amended disclosures as a result of IFRS 9 and IFRS 15 and give practical tips and definitions to add completion. - Chapter 5 will be useful for anyone new to the form this year it explains some key principles that were first explained last year. There are no changes to this from 2017/18. - Chapter 6 gives detailed guidance on particular notes and tables throughout the form we expect you ll refer to this as necessary; it s not intended to be read from start to end. - Chapters 7 and 8 then give specific information on how to record a transfer by absorption and how to consolidate a charity in the form. This guidance is unchanged from last year. - Annex 2 lists every change in the form compared to last year. A new sub-section has been added to explain a minor change made to the TAC schedules and this guidance since the illustrative versions issued on 7 December. At month 12 we will aim to keep changes to the TAC schedules compared to month 9 to a minimum. If we can help, or you d like to provide feedback, please get in touch. Details are in section 1. Yours sincerely Sector Financial Accounting team NHS Improvement NHS Improvement is the operational name for the organisation that brings together Monitor, NHS Trust Development Authority, Patient Safety, the National Reporting and Learning System, the Advancing Change team and the Intensive Support Teams.

3 Contents 1. Introduction TAC schedules and PFR form Timetable and submission Disclosures that can be omitted at month Supporting guidance and further information What s new for 2018/ Key changes Full list of changes Application of new standard: IFRS Introduction Changes and additions to TAC schedules Requirements of the standard Application of new standard: IFRS Introduction Changes and additions to TAC schedules Requirements of the standard Contract receivables decision tree Reminder of key principles Prior period comparatives Approach to charities Validations and Justify or Change points (JOCs) Detailed guidance: tab by tab How to record a transfer by absorption How to consolidate a charity into the TAC schedules Annex 1: Independent charities Annex 2: Changes to TAC schedules since 2017/18 month Annex 3: Addressing disclosure requirements of IFRS 7 following adoption of IFRS Annex 4: Addressing disclosure requirements of IFRS

4 1. Introduction 1.1. TAC schedules and PFR form NHS Improvement will prepare consolidated provider accounts using the information provided by providers in the Trust Accounts Consolidation (TAC) schedules. NHS Improvement will also prepare a consolidation return on a specific basis for inclusion within the Department of Health and Social Care (DHSC) s group accounts. The TAC schedules are included alongside the standard monthly monitoring tabs in the Provider Finance Return (PFR) form at months 9 and 12. Standing guidance on the monthly monitoring tabs is issued separately in order to give continuity with other months of the year. If this is your first time completing the form, please refer to the Information tab before you start to complete the form: this explains what the colours mean for different types of cell. We recommend the following approach to completing the form: 1. Complete the TAC tabs to achieve a balancing set of accounts. If you consolidate a charity (see section 5.2 below), leave this out for now. For 2018/19: please also see section which expands on this point given the 1 April 2018 adoption of IFRS 9 and IFRS Check the TAC validations and TAC JOCs to ensure that you have an accurate data set. 3. If applicable, consolidate your charity into the TAC tabs (see section 5.2 and chapter 8) and re-check the TAC validations and JOCs. 4. The monthly monitoring tabs are then fed from the TAC tabs as much as possible. Review the monthly monitoring tabs and complete missing information. 5. Add in updated forecast outturn (FOT) information to the monthly monitoring tabs. Separately, we will issue example accounts templates for month 12 which are linked to the TAC schedules. The accounts templates do not form part of an accounts direction to NHS trusts or foundation trusts. 2

5 1.2. Timetable and submission We issued our detailed timetable letter on 14 November. The letter can also be found at The month 9 PFR form (incorporating the TAC schedules) will be submitted three times: 23 January 2019, noon (full submission including receivables and payables agreement of balances data) 6 February 2019, noon (income and expenditure agreement of balances data) 25 February 2019, noon (resubmission of receivables/payables and income/expenditure agreement of balances data). Please refer to the timetable letter for full details of the requirements of each submission. IMPORTANT BREAKING LINKS All links to other workbooks must be broken before the PFR form is submitted to NHS Improvement. The protection in the PFR form means it is not possible to use the tools within Excel to break all the links. Providers should use the break links button on the cover Disclosures that can be omitted at month 9 NHS Improvement has issued a full set of TAC schedules to aid NHS trusts and foundation trusts in their planning for the year end. Some disclosures are not required to be completed at month 9. Where this is the case, the tables are clearly marked as not applicable with red headers. Any validation which relates to disclosures that are not required are coloured grey in the summary on the validations tab and are excluded from the count of validation fails. TAC TAC07 TAC07 Note/table Note 2.2 Fees and charges Note 3.2 Transaction price allocated to remaining performance obligations - However as this is a new disclosure under IFRS 15, providers should ensure they are familiar with the requirements of this note before the year end. 3

6 TAC TAC09 TAC09 TAC11 TAC13 TAC14 TAC14 TAC15 TAC19 TAC20 TAC21 TAC22 TAC22 TAC22 TAC28 TAC28 TAC28 TAC28 TAC28 TAC28 Note/table Note 5.4 Early retirements due to ill health Table 5A Staff sickness absence Note 9.2 The late payments of commercial debt Act Note 13.3 Economic lives of intangible assets Note 14.5 Economic lives of property, plant and equipment Table 14E Valuation methods for land and buildings Note 15.2 Investment property income and expenses Note 23.3 Third party assets Note 24.2 Early retirements included in payables Note 28.2 Finance lease details (Not finance lease obligations, which must be completed) Note 30.3 Clinical negligence liabilities Note 31 Contingent liabilities / assets Table 31A Contingent assets and liabilities not required to be disclosed under IAS 37 but included for parliamentary reporting and accountability purposes Note 37.1 Capital commitments Note 37.2 Other financial commitments Note 38.1 / 38.2 Related party transactions and balances This isn t required to be completed at month 9, but as listed in the list of changes, we have made changes to signage in this note so providers are encouraged to double-check their prior year comparatives. Note 39 Events after the reporting period Note 40.1 / 40.2 Breakeven duty This is only applicable to the full year so can be ignored at month 9. This note does not appear in templates issued to NHS foundation trusts. Note 40.3 Capital resource limit This is only applicable to the full year so can be ignored at month 9. This note does not appear in templates issued to NHS foundation trusts. In future years we would hope to add the financial instrument disclosures on TAC27 to this list, but clearly they are important in 2018/19 given the adoption of IFRS 9. 4

7 Approach to on-sofp pensions at month 9 Where a provider has an interest in an on-sofp pension scheme (e.g. a local authority pension), we expect that the actuarial information will not be available at month 9. We recommend that such providers record no in-year movements in the net pension liability in TAC26 at month 9 and instead account for the year to date employer contributions on a contribution basis at month 9 as staff cost expenditure (given this is likely to be the approach being taken to in-year monitoring forms in other months before month 12). TAC26 should be completed as normal at month 12 following receipt of actuarial information Supporting guidance and further information Please refer to the following sources of guidance: The Department of Health and Social Care Group Accounting Manual 2018/19 (GAM) provides detailed accounting guidance for NHS trusts and foundation trusts, and annual report guidance for NHS trusts The Foundation Trust Annual Reporting Manual 2018/19 provides annual report guidance and accounts directions for NHS foundation trusts The DHSC Agreement of Balances Guidance is applicable to all bodies in the DHSC group. We will post any relevant updates to our webpage at If there are any fixers to be issued for the PFR file, PFR contacts will be alerted by when the fixer is available in the additional documents section of portals. If we are aware of issues where a fixer has not yet been issued, we will post an update on the Financial Reporting webpage: you may find it helpful to check this page if you have a problem with the form. If you have any queries on the TAC schedules, please contact the Sector Financial Accounting team at Provider.Accounts@improvement.nhs.uk. 5

8 2. What s new for 2018/ Key changes IFRS 9 and IFRS 15 implementation from 1 April 2018 Chapters 3 and 4 of this document explain how to complete the relevant sections of the form affected by IFRS 9 and IFRS 15 adoption respectively. In applying the two new standards, we advise conceptually thinking in terms of applying IFRS 15 first and then IFRS 9. This is because IFRS 15 adoption may change balance sheet items which then need to be measured in line with IFRS 9. As explained in the GAM, the standards are being applied without restating prior periods. Opening adjustments are made to reserves as at 1 April No adjustments should be made to prior year numbers for IFRS 9 and IFRS 15 adoption. We recommend completing the TACs as follows: Step 1: Review pre-populated prior year comparatives as normal. Step 2: Update prior year comparatives for any material prior year errors not related to IFRS 9 or IFRS 15. Analyse any such changes on TAC33. Step 3: Complete tab TAC00: this contains the transition adjustments for IFRS 15 and IFRS 9 as at 1 April Step 4: Input any 1 April mergers/acquisitions on TAC30. Enter any subsequent IFRS 15 and 9 adjustments below the main table. Step 5: Complete the rest of the TAC schedules (apart from TAC28A), including any other absorption transfers. 6 7 Step 6: If required, consolidate charity. Step 7: Complete tab TAC28A - impact of IFRS 15 on current reporting period. Please refer to chapters 3 and 4 of this document for more detail on IFRS 9 and IFRS 15 adoption and form completion. 6

9 TAC21: Borrowings Note 29 Reconciliation of liabilities arising from financing activities Disclosure initiative amendments to IAS 7 require entities to disclose a reconciliation of the movements in liabilities that arise from financing activities, clearly showing both cash and non-cash movements. Note 29 on TAC21 collects this information. Within this note cash movements and non-cash movements should be recorded gross. This therefore means that interest charges arising in the year (application of the effective interest rate) increase the liability as a non-cash movement and interest cash payments subsequently reduce it. Cash flows for payments of principal are populated from TAC05 however in some instances may require reallocation between columns. Cash flows for interest payments are populated for loans only for PFI and finance leases these movements should be entered manually, excluding any amounts that relate to contingent rent. Interest arising in year on PFI is populated but the interest arising on loans and finance leases should be entered manually excluding any contingent rents or interest which has been capitalised. Absorption transfers are fed from TAC30. Any other non-cash movements such as new finance leases or disposals should be entered manually. Checks are included beneath the note to ensure that opening and closing balances match the borrowings and finance lease notes. A simplified counterparty split has been included for movements on finance lease payables to facilitate eliminations in the consolidated provider and DHSC accounts. Information for the comparative year is not required in the year of adoption (IAS 7, paragraph 60) so there is no prior year version of this table TAC22: Provisions Note 30 Provisions for liabilities and charges A new category has been included in the provisions note for Pensions injury benefits. Providers previously including injury benefits in Other or Pensions early departure costs should reclassify those amount into the new column in the prior year note. Where providers clearly indicated in the freetext in their 2017/18 TAC forms that other provisions included injury benefits, a JoC check has been included to check these amounts have been reclassified to the new column. The previous column for continuing care provisions has now been removed as this is no longer expected to apply to NHS providers. 7

10 TAC26: Pension Table 35A Breakdown of amounts recognised in the SoCI A new table has been added to TAC26 for those providers recognising a defined benefit pension liability / asset on their balance sheet. This table collects information on where the pension costs charged to the SoCI under IAS 19 have been recognised. Should the line in which your trust has recognised its defined benefit pension charges / credits not be listed, please record such amounts in PEN0500 and note the relevant lines in the freetext box provided Full list of changes A full list of changes to the TAC schedules compared to month /18 is provided in annex 2 to this document. Changes in the form can also be identified with the following conventions throughout the template itself: Purple shading indicates a column, row, table or sheet that is a new requirement Red text indicates a change in the requirement of an existing row On TAC Validations and TAC JoCs, changes are marked as NEW or Amended in red text on the left-hand side. 8

11 3. Application of new standard: IFRS Introduction Section of this document explains the high-level principles for completing the form in light of IFRS 9 and IFRS 15 adoption. It also includes a recommended overall approach to completing the TAC schedules. Adopting IFRS 9 means many of the disclosure requirements in IFRS 7 are required: this chapter will largely refer to IFRS 7 and this is where the disclosure requirements are specified. Please refer to the GAM for more information on the measurement provisions of IFRS 9 specifically. This chapter specifically deals with the impact on the TAC schedules of adopting IFRS 9. The disclosure requirements in IFRS 7 resulting from IFRS 9 adoption are extensive. In the TAC schedules we do not collect information that we expect not to be material to the group and is not required for any other purpose, or for reporting to the Department. This means that not every disclosure requirement in the standard is included in the TACs: see section 3.3 for more on this. This chapter seeks to explain what you need to do in order to complete the TAC schedules Changes and additions to TAC schedules TAC00: New standards 1 Apr 18 Table T1 SoFP adjustments for the implementation of IFRS 15 and IFRS 9 on 1 April 2018 This table collects the impact of adoption of the new standards on the 1 April 2018 opening balance sheet. To simplify the presentation, the rows of this table only show the SoFP lines that we expect may be affected by IFRS 9 and IFRS 15 adoption. Other rows are summarised. The DHSC GAM consultation explained the impact of moving from measuring loans from DHSC at historic cost to an amortised cost basis. In practice this means that the carrying value of the loan presented in the financial statements should include both the loan principal and any interest accrual as at the reporting date. This table pre-populates this impact on row IFRS0080 using prior year data on interest accruals (both DHSC and other loans). It is expected that the opposite entry will appear in row IFRS0090 but the formula here can be overwritten to also include any other changes in borrowings. This table should be completed before other areas of the TACs as it will drive opening balances in several movements notes and ensure that these non-cash movements are excluded from the cash flow. 9

12 TAC00: New standards 1 Apr 18 Table T2 Impact of IFRS 9 on financial assets as at 1 April 2018 This table is designed to meet the requirements of paragraphs 42I, 42L and 42O of IFRS 7. We ve termed it a table rather than note as we do not expect any providers to have material impacts so as to require disclosure in local accounts. The table discloses the impact of IFRS 9 adoption upon the measurement and classification of financial assets. It is designed to follow the familiar format of the financial assets table in TAC27 except the rows and columns have been transposed, to avoid having an excessive number of columns. It is a table of carrying values, not fair values. The first part of the table is for the original measurement under IAS 39. The values are pre-populated from your 2017/18 final TACs. They are unlocked but we wouldn t expect them to change. Providers must complete the second part of the table, showing how these financial assets are measured and classified under IFRS 9. If a financial asset has been newly recognised or derecognised as a result of adopting IFRS 15, that should be included in the second part of the table. In the third part of the table, which separates out the reasons for changes in the 1 April 2018 balances, please allocate such movements into the row Recognition, derecognition or reclassification under IFRS 15 (row subcode IFRS0480). Previously, the debtor associated with the Injury Cost Recovery (ICR, formerly Road Traffic Accident (RTA)) scheme has not been considered a financial instrument as it does not arise under contract. It was therefore not previously included in providers IFRS 7 disclosures for financial assets, reflected in the top part of table T2. In December 2018, HM Treasury amended the FReM to include a new adaptation to IAS 32 on the definition of a financial instrument which now includes such balances. HM Treasury has confirmed this change should apply from 1 April 2018 in line with how IFRS 9 and 15 are being applied. Providers with ICR debtors should therefore include this in the second part of the table (carrying values under IFRS 9 as at 1 April 2018) in row IFRS0400. Please note that the ICR debtor is non-dhsc as the Compensation Recovery Unit is not hosted by a DHSC body. In analysing the changes in the bottom part of the table, newly considering the ICR debtor as a financial instrument should be added to row IFRS0500 for other measurement changes. The checks at the bottom of the table ensure that it has been fully completed and that the overall change in carrying values agrees to that entered in table T1. 10

13 TAC00: New standards 1 Apr 18 Table T3 Impact of IFRS 9 on financial liabilities as at 1 April 2018 This table is designed to meet the requirements of paragraphs 42L and 42O of IFRS 7. We ve termed it a table rather than note as we do not expect any providers to have material impacts so as to require disclosure in local accounts. The table discloses the impact of IFRS 9 adoption upon the measurement and classification of financial liabilities. It is designed to follow the familiar format of the financial assets table in TAC27 except the rows and columns have been transposed, to avoid having an excessive number of columns. It is a table of carrying values, not fair values. The first part of the table is for the original measurement under IAS 39. The values are pre-populated from your 2017/18 final TACs. They are unlocked but we wouldn t expect them to change. Providers must complete the second part of the table, showing how these financial liabilities are measured and classified under IFRS 9. Although IFRS 15 adoption may change contract liabilities (deferred income), these are not financial liabilities (not settled in cash) and so IFRS 15 adoption is not expected to affect this IFRS 9 table. All providers with DHSC loans at 1 April 2018 will need to reallocate the interest accrual out of payables for the reason explained in above. The checks at the bottom of the table ensure that it has been fully completed and that the overall change in carrying values agrees to that entered in table T TAC00: New standards 1 Apr 18 Table T4 Impact of IFRS 9 on allowance for doubtful debts as at 1 April 2018 This table is designed to meet the requirements of paragraph 42P of IFRS 7. We ve termed it a table rather than note as we do not expect any providers to have material impacts so as to require disclosure in local accounts. This is an analysis of the 1 April 2018 credit loss allowance, specifically for receivables. The standard requires the analysis to be split by financial asset class used in the SoFP. Credit loss allowances on other financial assets are not material to the consolidated provider accounts, and so this table only relates to receivables. This will feed into the opening for the credit loss allowance note on TAC18. The first part of the table is for the original measurement under IAS 39. The values are pre-populated from your 2017/18 audited TACs. All providers must use the second part of the note to split out credit loss allowances relating to contract receivables and contract assets separately from those relating to other receivables. This is because the form needs the 1 April amounts in order to meet the IFRS 15 11

14 disclosure requirement covered by the table on TAC18. Note that the GAM adapts the definition of a contract to bring ICR income under IFRS 15. Allowances for ICR debtors should therefore be included in the contract receivables row (IFRS0680) TAC01: Confirmations As explained in section 3.1 we aren t collecting information where we do not expect the position to be material for the consolidated provider accounts. To ensure this is accurate, we have added some additional confirmation questions to understand individual providers circumstances. We have also taken the opportunity to re-order existing confirmation questions so that those relating to financial instruments sit together. Questions 12 to 18 cover financial instruments TAC02: SoCI Other comprehensive income is separated into items that may be reclassified into income and expenditure in the future and those that will not be. A new row has been added for fair value gains/losses on equity instruments designated at fair value through OCI, separate from financial assets mandated as such due to the former not being reclassified into income and expenditure upon derecognition of the instrument TAC03 SoFP and TAC04 SoCIE The reserve Available for sale investments reserve has been renamed Financial assets at FV through OCI reserve. The relevant rows in the SoCIE have been renamed similarly, with also separate rows for equity instruments designated at fair value through OCI and financial assets mandated as such given the different presentation required in the SoCI (TAC02). Implementation adjustments taken to reserves on 1 April 2018 are fed into dedicated rows in the SoCIE from information entered on TAC00 (and TAC33 for University Hospitals Birmingham and Mersey Care who merged with other organisations on 1 April 2018) TAC11: Finance & other Note 10 Other gains and (losses) The main change is that gains and losses on disposal of financial assets are now split between those that were held at amortised cost and those held under a different measurement category, to meet the new requirement of IFRS 7 paragraph 20A. 12

15 TAC15: Investments & groups Note 17.1 Other investments / financial assets (non-current) There are now separate rows for the fair value gains and losses on equity instruments designated at fair value through OCI and financial assets mandated as such, to match the presentation required in the SoCI (TAC02). Note that this is a table of movements in the net carrying value of financial assets, so is already net of any credit loss allowances. IFRS 9 changes the way impairments to financial assets are measured by applying an expected credit loss model. This is likely to result in losses being recognised earlier than they have been previously. Movements in stage 1 and 2 credit loss allowances (initial 12 month expected losses and lifetime expected losses where the financial asset has reduced in credit quality) should be recorded in the new row for (increases)/decreases in credit loss allowances. Such losses feed into the movement in credit loss allowance row in the operating expenses note along with any movements in allowances on receivables. Once a credit impairment event has occurred, these losses reach stage 3 and the stage 1 and 2 loss allowances should be reversed and an impairment (stage 3 loss) recorded in TAC12 which will feed the net impairments row in Note This will appear as an impairment in the operating expenses note TAC15: Investments & groups Table 17A Gross carrying value of other investments / financial assets As explained in section for transition, we are not collecting a full reconciliation of movements in credit loss allowances for non-receivable financial assets (investments) as we do not expect it to be material to the consolidated provider accounts and are instead recording investments on a net basis. Table 17A collects the value of the total credit loss allowance on other financial assets and uses this to compute the gross carrying value at the balance sheet date. This will allow us to assert that credit loss allowances for these financial assets are not material TAC18: Receivables Note 20.2 Allowance for credit losses (doubtful debts) This table expands the previous TAC table on the allowance for doubtful debts to meet the requirements of IFRS 7 paragraphs 35H and 35I. It is also split between contract receivables and other receivables in order to satisfy the requirements of IFRS 15 that credit losses on contract receivables / contract assets are disclosed separately to credit losses on other types of receivable. Additionally, it collects the 13

16 portion applicable to balances with DHSC group bodies, in order to facilitate group eliminations. In general, movements in providers credit loss allowances are expected to relate to the following four main rows: New allowances arising lifetime expected credit losses assessed when initially recognising the receivable Changes in the calculation of existing allowances changes in allowances for receivables recognised in a previous period including changes in the credit quality of the debtor. Reversals of allowances where the allowance is released because the receivable has been paid Utilisation of allowances where the receivable is subsequently written off Most providers are unlikely to need to use the changes arising following modification of contractual cash flows (where credit payment terms are altered) or foreign exchange and other changes rows. Checks at the bottom of the table ensure that the closing total for credit loss allowances agrees to the main receivables note TAC20: Payables Note 24.1 Trade and other payables The lines for accrued interest are now locked for the current year as loans will now be held at amortised cost. See section above. Any comparative for accrued interest should remain in this note and not be restated TAC21: Borrowings Note 27 Borrowings Loans, including those from DHSC, are now held at amortised cost. This is explained further in the GAM consultation. For DHSC loans, the effective interest rate is the DHSC nominal rate. This doesn t change the structure of this table but will in most cases change the carrying value of the loan, with interest no longer accrued separately but instead added to the carrying value of the loan at the balance sheet date. The checks at the right hand side of this note which are populated by fixer have been amended to reflect the updated carrying values of DH loans. Both principal and interest accrual balances are now validated together against this note. IFRS 9 is applied from 1 April 2018 so there should be no amendments to prior year values. 14

17 TAC27: Fin Inst Note 36.1 Carrying value and fair value of financial assets This note has been updated to reflect the measurement categories included in IFRS 9. The financial asset classes (to relate to the balance sheet) have remained the same as the prior year as much as possible. This remains primarily an analysis of carrying value but where fair values would differ significantly from the carrying values recognised, trusts continue to indicate this in columns L and M (this functionality is unchanged from prior year). There is no prior year table in this year s TACs as the information is presented as part of the transition disclosures on TAC00. If you use your own accounts template rather than the template supplied by NHS Improvement, the prior year disclosure in an IAS 39 format can be linked to TAC TAC27: Fin Inst Note 36.2 Carrying value and fair value of financial liabilities This note has been updated to include the measurement categories included in IFRS 9. The financial liability classes (to relate to the balance sheet) have remained the same as the prior year as much as possible. This remains primarily an analysis of carrying value but where fair value would differ significantly from the carrying values recognised this should be indicated in columns J and K as previously. There is no prior year table in this year s TACs as the information is presented as part of the transition disclosures on TAC00. If you use your own accounts template rather than the template supplied by NHS Improvement, the prior year disclosure in an IAS 39 format can be linked to TAC Requirements of the standard Annex 3 to this document sets out how the disclosure requirements of IFRS 7 (following adoption of IFRS 9) have been reflected in the TAC schedules together with additional considerations for your local accounts. 15

18 4. Application of new standard: IFRS Introduction Section of this document explains the high level principles for completing the form in light of IFRS 9 and IFRS 15 adoption. It also includes a recommended overall approach to completing the TAC schedules. This chapter specifically deals with the impact on the TAC schedules of adopting IFRS 15. The disclosure requirements in the standard are extensive. In the TAC schedules we do not collect information that we expect to not be material to the group and is not required for any other purpose, or for reporting to the Department. This means that not every disclosure requirement in the standard is included in the TACs: see section 4.3 for more on this. This chapter seeks to explain what you need to do in order to complete the TAC schedules Changes and additions to TAC schedules TAC00: New standards - 1 Apr 18 Table T1 SoFP adjustments for the implementation of IFRS 15 and IFRS 9 on 1 April 2018 This table collects the impact of adoption of the new standards on the 1 April 2018 opening reserves position. To simplify the presentation, the rows of this table only show the SoFP lines that we expect may be affected by IFRS 9 and IFRS 15 adoption. Other rows are summarised. The all other assets row (IFRS0050) should only be used where contract costs have been recognised as an asset in accordance with paragraphs 91 to 98 of IFRS 15. Such accounting treatment is expected to be rarely used. This table should be completed before other areas of the TACs as it will drive opening balances in several movements notes and ensure that these non-cash movements are excluded from the cash flow. Note that in the rare circumstance where contract costs have been recognised as an asset (per above), we cannot determine where on the SoFP this will have been recorded so this adjustment may need to be manually adjusted out of the cash flow TAC01: Confirmations Significant judgements made in the application of IFRS 15 are required to be disclosed in local accounts (IFRS 15 paragraph 123). To aid the assessment of whether such local judgements are material to the consolidation, providers are asked in confirmation question 12 whether such significant judgements have been 16

19 made locally (outside of the NHS standard contract). Judgements disclosed by providers will be considered centrally to form a disclosure for the consolidated accounts TAC04: SOCIE Implementation adjustments taken to reserves on 1 April 2018 are fed into dedicated rows in the SoCIE from information entered on TAC00 (and TAC33 for University Hospitals Birmingham and Mersey Care who merged with other organisations on 1 April 2018) TAC07: Op Inc 2 Note 2.1 Other operating income Paragraph 113(a) of IFRS 15 requires providers to disclose revenue recognised from contracts with customers separately from other sources of revenue. This note has therefore been updated to split out IFRS 15 revenue streams from non-ifrs 15 revenue streams (ie those recognised in accordance with other standards). This has resulted in lines of income appearing in a different order to previous returns. This re-ordering has also been reflected in monthly monitoring (PFR) and plan (FPR) forms for consistency. Additional guidance on applying the standard: Approach to classifying income Although IFRS 15 is titled Revenue from contracts with customers, it specifies that contracts may be written, oral or implied by customary business practices. Therefore this incorporates the majority of income that was previously recognised under IAS 18. The absence of a formal written contract does not take the revenue out of the scope of this standard. Providers should therefore approach this with the view that unless revenue streams are covered by another standard or specifically excluded from scope by paragraph 5 of the standard, then the revenue should be recognised under IFRS 15. For the avoidance of doubt, the following revenue streams do fall within the scope of IFRS 15: Injury cost recovery income the GAM specifically amends the definition of a contract to bring this revenue stream into the scope if IFRS 15. Income associated with the treatment of NHS patients, such as noncontracted activity, over-performance and partially completed spells. Income from the Provider Sustainability Fund this is clarified as in scope in the GAM Cash revenue streams such as car parking income and catering where the oral or implied contract is entered into at the point of cash being taken. 17

20 A new line has been added to record other income which is not recognised under IFRS 15. This is expected to be small as most other income streams are assumed to be recognised under IFRS 15. Table 2A is therefore now a breakdown of other IFRS 15 income. Note that as revenue from patient care activities is all expected to be recognised in accordance with IFRS 15, no changes have been made to TAC TAC07: Op Inc 2 Note 3.1 Additional information on contract revenue (IFRS 15) recognised in the period This note collects additional information on revenue recognised under IFRS 15 in the year. A simplified counterparty split is collected to facilitate group eliminations to be made in the all provider and DH consolidated accounts. Paragraph 116 (b) of the standard requires disclosure of revenue recognised that was previously included in contract liabilities (ie release of deferred income during the year). Paragraph 116 (c) requires disclosure of additional revenue recognised from performance obligations satisfied (or partially satisfied) in a previous period. This will include for example variable consideration where an estimate was made in the previous period TAC07: Op Inc 2 Note 3.2 Transaction price allocated to remaining performance obligations This note collects information on revenue expected to be recognised in future periods from performance obligations that are unsatisfied (or partially satisfied) at the period end. This is therefore contracts that have commenced prior to the period end but for which performance obligations are outstanding and income has not yet been recognised. This is required by paragraph 120 of IFRS 15. The practical expedients in paragraph 121 should be exercised therefore excluding any contracts that are for one year or less in duration and contracts where an entity has a right to consideration directly corresponding to work done to date. Information is collected in a simplified counterparty split to allow group eliminations TAC08: Op Exp Note 4.1 Operating expenditure There is a new line in the expenditure note to disclose movements in credit loss allowances for contract receivables / assets separately from movements in allowances on all other receivables and financial assets. This meets the requirement of IFRS 15 paragraph 113(b). Charges are fed into this note from the 18

21 credit loss allowances movements table for receivables on TAC18 a counterparty split should be added TAC18: Receivables Note 20.1 Receivables Paragraph 16 (a) of IFRS 15 requires entities to disclose the value of contract receivables and contract assets. A contract receivable is a provider s unconditional right to receive cash or other consideration in relation to contracts with customers (revenue under IFRS 15). An unconditional right will most often arise once performance obligations have been satisfied. A provider does not need to have raised an invoice to have an unconditional right to consideration. If a contract specifies that the NHS provider is entitled to payment in advance then the contract receivable arises before the performance obligations have been satisfied (a contract liability will then also be recognised where such performance obligations have not been satisfied by the period end). A contract asset is where the provider s right to consideration is still conditional on another factor (other than the passage of time or an administrative process). If a provider has simply not issued an invoice at the period end but otherwise has an unconditional entitlement to the consideration, this is not a contract asset such not yet invoiced amounts are contract receivables. Contract assets are not the same as accrued income before the adoption of IFRS 15. Further, the term contract asset does not refer to assets arising from contract costs (per paragraph 91 of IFRS 15) where such examples are expected to be rare for NHS providers. There is a clear overlap between contract receivables under IFRS 15 and trade receivables and accrued income from the previous analysis of receivables. To avoid the burden of requiring multiple analyses of receivables, the old trade receivables and accrued income categories within receivables have now been locked. Current year receivables should instead be analysed using the new rows. Contract receivables (IFRS 15): invoiced this is expected to relate to contract receivables that are on the sales ledger. Contract receivables (IFRS 15): not yet invoiced / non-invoiced where your contract receivables have not yet been invoiced at the year end and so are accrued on the GL instead or where no invoice is required to be raised (eg PSF). Contract assets (IFRS 15): Where performance obligations have been partially satisfied and revenue has been recognised but the provider has no entitlement to any consideration until further performance obligations have 19

22 been satisfied. We don t expect this to be a significant item for most providers. Any accrued income that does not relate to income recognised under IFRS 15 should be included in other receivables or other relevant receivable categories (eg VAT receivables, capital receivables etc). Such amounts are not expected to be material for most providers. A decision tree has been included in section 4.4 to aid providers in concluding in which of these new rows to classify balances. Additional guidance on applying the standard: Approach to identifying contract balances Similar to the advised approach for classifying income, providers will likely find it less burdensome to approach this by identifying receivables which do not relate to revenue recognised under IFRS 15. These will include: receivables where the income is recognised in accordance with another standard (eg lease receivables and accrued grants and donations accounted for under IAS 20), receivables where the associated gain or loss is not an item of revenue (eg proceeds on disposal of PPE), receivables relating to taxes paid and PDC dividends; and receivables where the counterparty is not considered a customer by the standard (eg credit balances reclassified from payables these relate to refunds of expenditure so the counterparty is not the customer) TAC20: Payables Note 25 Other liabilities IFRS 15 also requires contract liabilities to be separately disclosed. Contract liabilities are where consideration is received or receivable ahead of the provider completing performance obligations (ie ahead of recognising revenue). This is therefore all deferred income in relation to IFRS 15 revenue. The previous deferred income row in note 25 on TAC20 has been renamed to meet this disclosure requirement. Should the provider have any other deferred income which does not relate to IFRS 15 revenue, deferred grants, PFI credits or lease incentives, a new row has been added for Deferred income: other. However as most deferred income will fall under IFRS 15, this new row is expected to be rarely used. 20

23 TAC28A: IFRS Table T5 Breakdown of opening IFRS 15 adjustment by counterparty This table pulls through the 1 April 2018 IFRS 15 implementation adjustments recorded previously in TAC00. The table requires a counterparty split to be entered for to permit group level eliminations to be performed. Note this table applies to IFRS 15 only TAC28A: IFRS Table T6 Impact of the adoption of IFRS 15 on this reporting period As IFRS 15 is applied retrospectively without restatement of comparatives, paragraph C8 of IFRS 15 requires entities to disclose the impact on financial statement line items in the current period resulting from the application of IFRS 15. This table is therefore designed to collect the impact of IFRS 15 on the current year SoCI, SoFP and SoCF. Providers are advised not to attempt to complete this table until the primary statements in TACs 2 to 5 have been balanced. The primary statements after the application of IFRS 15 (ie per TACs 2 to 5) feed through to column F. The impact of IFRS 15 on 1 April 2018 opening balances, already entered on TAC00 is fed into column G. Such adjustments to receivables and deferred income are assumed to be current. Where they relate to non-current amounts, please enter the non-current figure in the relevant row which will reduce the value of the adjustment disclosed as current. For providers who underwent a merger or acquisition on 1 April 2018, any IFRS 15 impact on transferred balances recorded in TAC30 is similarly populated into column H. In column I providers should enter the in-year impact of applying the new standard. This is therefore the change in income recognised as a result of the new standard and the corresponding movement in receivables and payables. There is a check beneath the table to ensure the impact recorded in this column is a balancing double entry. The impact on the cash flow is automatically calculated. In columns K to N, a breakdown of the total of all the impact columns (G to I) by counterparty is required to make eliminations in the group accounts. This includes a breakdown of the opening adjustment taken to reserves on 1 April. The checks in column Q ensure counterparty breakdown is complete with column P identifying how much is left to allocated. Note that this table applies to IFRS 15 only. There is no similar requirement for IFRS 9 as this is specifically removed by paragraph 42Q of IFRS 7. Column I should therefore only include the in-year impact of IFRS

24 4.3. Requirements of the standard Annex 4 to this document sets out how the disclosure requirements of IFRS 15 have been reflected in the TAC schedules together with additional considerations for your local accounts Contract receivables decision tree We have prepared the following decision tree to assist with understanding the classification differences between contract receivables and contract assets: Does the contract specify a right to receive payment in advance? Yes Has invoice been issued? No Yes Contract receivable: invoiced No Contract receivable: noninvoiced Have you satisfied the performance obligations? No No income or receivable to be recognised Partially Yes: fully Does contract withhold payment until further performance obligation(s) have been completed? No Does contract specify dependence on another factor before consideration is payable? Yes Yes No Contract asset Has invoice been issued? Yes Contract receivable: invoiced (to the extent of performance obligations completed) No Contract receivable: non-invoiced (to the extent of performance obligations completed) 22

25 5. Reminder of key principles This chapter does not contain any new information since 2017/ Prior period comparatives Prior period adjustments within local accounts are rare but may be required in application of International Accounting Standard (IAS) 8. Prior period comparatives are populated into the TAC schedules for NHS foundation trusts using data from the 2016/17 audited FTC form and are unlocked. If a provider needs to make a prior period adjustment in its accounts, it should be reflected in the TAC schedules in exactly the same way. The key thing is that at month 12 your audited accounts and TAC schedules must be fully consistent, including prior year numbers. If you do change a prior period figure, TAC33 (PPAs) will identify this and ask for an explanation. For 2018/19, prior year comparatives must not be restated for the impact of IFRS 9 or IFRS 15. Where NHS Improvement contacted your trust in the prior year in relation to an error identified in your FTC, the adjustments agreed with you have been reflected in your populated comparatives. Any such central changes for your specific trust are explained in the from Provider Accounts dated 20 or 21 December. Please review this for details; we ask you to not change the figures back without talking to us (Provider Accounts) first Approach to charities Some NHS providers consolidate an NHS charity into their accounts under the requirements of IFRS 10. Section 8 explains why this means we need to allow the consolidation of charities within the TAC schedules. Within the TAC schedules there are blue headed columns to enable preparers to present intra-group eliminations for their charity consolidation specifically. If you do not consolidate a charity under IFRS 10 you can simply ignore the blue headed columns. DHSC is required to consolidate almost all NHS charities into its accounts, regardless of local consolidation. For an NHS provider with a linked charitable fund, there are 3 different circumstances, which determine how the TAC schedules should be completed: 1. Provider has NHS charity it is consolidating under IFRS 10: o The consolidation should also be reflected in the TAC schedules as the TAC schedules must be consistent with the provider s accounts. 23

26 o All providers consolidating a charity should refer to the guidance in section 8 which provides detailed instructions on charity consolidation in the TAC schedules. o In this scenario please complete TAC40 (Charity - consol) and leave TAC41 (Charity non-consol) blank. 2. Provider is not consolidating its charity and the charity is included on the list of charities regarded as fully independent by DHSC: o Some charities are fully independent and are entirely excluded from the DHSC consolidation. These are listed in annex 1. In these cases please do not complete either TAC40 or TAC Provider is not consolidating its charity under IFRS 10 and the charity is not listed in annex 1: o For these charities, we need to collect summary data to enable DHSC to complete its all charities consolidation centrally. o In this scenario please ignore TAC40 (Charity - consol) and all the blue headed charity columns in the TAC (these are for charity consolidators). But please complete TAC41 (Charity non-consol) and we will pass this information to DHSC. If a provider is in the rare situation of being in more than one of these circumstances (i.e. they have more than one linked charity, treated differently), please get in touch with Provider Accounts Validations and Justify or Change points (JOCs) Validations must be passed in each submission, unless you have contacted Provider Accounts in advance and obtained clearance prior to submission. A JOC is a softer validation: the form will identify if any data appears unusual, and the user must then justify (explain) it or make any necessary change. If you are experiencing any problems with accounts (TAC) validations or JOCs as part of completing the TAC schedules, please contact us at provider.accounts@improvement.nhs.uk well in advance of the deadline for submitting the form. We will only accept validation fails where they have been pre-approved, and will review all JOC explanations. 24