Supporting Older People Conference

Transcription

1 Supporting Older People Conference Speakers: Active chair: SP1: The housing SORP but not as we know it! Mei Ashelford Project Director, Accounting and Reporting Policy Team, Financial Reporting Council Faye Gordon Senior Manager, PriceWaterhouseCoopers Jack Stephen Finance Director and Deputy Chief Executive, Thames Valley Housing Association and Chair, SORP Working Party

2 Introduction to new UK GAAP Mei Ashelford Project Director, Accounting & Reporting Policy Team Financial Reporting Council

3 Contents Overview of new UK GAAP reporting framework Rationale for the change The SORP development and approval process

4 Reporting Framework UITF Abstracts FRSSE SSAPs and FRSs New UK GAAP

5 Rationale for change No consistent framework Former standards permitted certain transactions to remain unrecognised Standards had not kept pace with evolving business transactions

6 Objectives for change Reflect up-todate thinking and developments in the way businesses operate IFRS-based framework Costeffective to apply Promote efficiency within groups

7 Overview of new UK GAAP FRS 100 Application of Financial Reporting Requirements EU-adopted IFRS FRS 101 FRS 102 FRSSE Reduced Disclosure Framework The Financial Reporting Standard applicable in the UK and RoI The Financial Reporting Standard for Smaller Entities FRS 103 Insurance Contracts Small Entities Micro- Entities Effective for accounting periods beginning on or after 1 January 2015

8 Outcome Succinct requirements - 3,000 pages down to <300 pages Nevertheless there will be costs incurred in transitioning to the new standards, but these are out-weighed by the benefits of improvements in financial reporting

9 Key changes Financial instruments Defined benefit pension schemes Deferred tax Investment properties Goodwill and intangible assets Business combinations

10 SORP development SORP Working Party Lead on development and drafting process FRC Support Working Party in development process Prepare and issue exposure draft Rigorous review and two-tier approval of exposure draft for compliance with FRS 102 Perform consultation and engage sector Review responses to consultation and consider appropriate amendments to draft SORP Consider appropriateness of amendments in light of responses Prepare and issue final SORP Rigorous review and three-tier approval process of final SORP before issue

11 The SORP but not as you know it Faye Gordon, Senior Manager,

12 Contents Key areas of change and development Timescales Considerations for implementation 45

13 Classification of housing properties Are housing properties property, plant and equipment or investment properties? Is the housing property is held primarily for social benefit? Yes = property, plant and equipment and can be measured at cost or valuation No = investment property measured at market value SORP sets out guidance on considerations to be applied in assessing the intended use of a housing property 46

14 Accounting for grants FRS 102 requires that non government grant is accounted for based on the performance model FRS 102 requires that government grant is accounted for applying either the accrual model or the performance model Accounting for government grant was an area of significant debate for the SORP Working Party outcome of this was that the SORP mandates: Accrual model for those at historic cost Performance model for those at valuation 47

15 Accounting for government grants How would accrual model apply to government grant? Defer government grant on balance sheet as liability Amortise (release to profit and loss) over life of asset. Amortise over life of structure (not land) Amortise over components if grant is given for that purpose Impact: Smoother profit and loss over life of the property assets Grossing up of current net depreciation charge increase in depreciation charge plus amortisation of grant to income 48

16 Accounting for government grants How would performance method apply to social housing grant? Initially hold on balance sheet as liability Recognise the grant as income as soon as performance-related conditions are met When are performance-related conditions met? Impact: Increased volatility in the profit and loss Higher depreciation charge on assets in future years 49

17 Stock swaps FRS 102 sets out accounting requirements for property, plant and equipment acquired for non-monetary assets at fair value These principles applied to the accounting guidance for stock swap transactions Fair value for social housing properties= existing use valuation for social housing Social housing grant transfers with the properties as does the obligation to recycle or reuse the social housing grant in the event of the assets received being disposed of The current value of the grant obligation transferred is included in the EUV-SH No transitional arrangements must be applied retrospectively 50

18 Impairment FRS 102 refers to fair value less costs to sell and value in use within the impairment section Debate over value in use and how this concept could be applied to the social housing sector Current method of planned internal subsidy not a suitable valuation method Discussions with valuers provided additional information on EUV-SH and how it is calculated 51

19 Impairment Significant area of debate and discussion following issue of the Exposure Draft Consultation to be issued shortly for the impairment section of the SORP Key changes: Clarifying when there is a trigger of impairment Cash generating units Value in use Value in use (in respect of assets held for their service potential) 52

20 Employee benefits Recognition of liability (where material) for short term compensated absences Multi- employer exemption for defined benefit pension schemes still holds BUT agreements in place to fund past deficits will require recognition as a liability in the Statement of Financial Position Defined benefit pension schemes actuarial gains and losses recognised within other comprehensive income 53

21 Financial instruments Currently there is limited fair value accounting of financial instruments in the housing sector Basic financial instruments held at amortised cost same as now Complex (or non-basic) financial instruments fair value movements taken to profit and loss account volatility Hedging arrangements new arrangements under FRED 51 FRED 54 recently issued to make changes to FRS

22 Narrative reporting FRS 102 silent on narrative reporting SORP Working Party felt it was important to include guidance on narrative reporting Refers to Strategic Report rather than Operating and Financial Review SORP provides an overview of the proposed content and principles to be followed in drafting Consistent with the new Companies Act requirements 55

23 Other areas of change Leases Standard rental agreements with tenants meet the definition of a lease under FRS 102 No change in accounting, BUT increased disclosure requirements Related party transactions Disclosure required for all transactions with related parties This includes board members therefore all transactions and year end balances with board members must be disclosed in the notes to the accounts Disclosure of transactions with board members can be aggregated 56

24 Timetable Transition planning and implementation 1 April 2014 / 31 March 2015 O/Bal sheet / comparatives 31 March 2016 First full year financial statements Date Milestone 14 Nov 13 SORP 2014 exposure draft issued 14 Feb 14 Consultation on SORP 2014 exposure draft closes 18 March 14 SORP Working Party considers responses 1 April 14 Transition date for opening balance sheet Sept 14 Finalisation of SORP 31 March 15 Comparative year end 31 March 16 First full year of FRS 102 compliant financial statements

25 Timetable CAPE meeting to consider updated impairment section 20 March 2014 Aim to issue revised impairment section for consultation mid April week consultation period closing June 2014 Impact of additional consultation is publication of the SORP will be delayed until September

26 Implementation resource requirements Practical implications of conversion PROCESS SYSTEMS PEOPLE Accounting policies New controls New valuations Impairment modelling Budgeting process Project set up External audit costs Budgets and forecasts Comms to stakeholders Accounting systems Data gaps Update chart of accounts Training Increase data collection Management reporting Communication strategy Training strategy Project Management support Resource / skills Corporate governance Embedding knowledge in new policies and processes 59

27 A successful conversion model: what should I do now? Transition planning and implementation 1 April 2014 FRS 102 o/bal 31 March 2015 FRS 102 Comparatives 31 March 2016 First year of reporting Phase 1 Phase 2 Phase 3 Impact Assessment 2.1 Project Set-Up 2.2 Evaluation & Issues Resolution 2.3 Initial Conversion opening balance sheet Embed Change

28 Questions 61

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30 Supporting Older People Conference Speakers: Active chair: SP1: The housing SORP but not as we know it! Mei Ashelford Project Director, Accounting and Reporting Policy Team, Financial Reporting Council Faye Gordon Senior Manager, PriceWaterhouseCoopers Jack Stephen Finance Director and Deputy Chief Executive, Thames Valley Housing Association and Chair, SORP Working Party