The Local Authorities (Capital Finance and Accounting) (England) (Amendment) Regulations 2022: call for evidence

Closed 7 Nov 2022

Opened 27 Oct 2022


Earlier this year, the government became aware of an issue relating to the reporting of infrastructure assets, which has led to delays in local authority audits.  

Accounting for infrastructure assets in local government has not historically been considered to be an area of significant audit risk. However, recent concerns have been raised by local government auditors that some authorities are not applying component accounting requirements with respect to these assets.  Specifically, due to significant historical information deficits, many authorities are unable to provide sufficient evidence of the value of replaced components of infrastructure assets when they are derecognised. This is particularly the case in relation to roads, though the issue is likely to impact on all infrastructure assets. This may also lead to issues relating to the reporting of gross historical cost and accumulated depreciation. This has led to delays to audit completion for many authorities, and the risk of widespread accounts qualifications. 

In response, CIPFA and CIPFA LASAAC agreed to try to assist in the resolution of the issue through changes to the Code of Practice on Local Authority Accounting (the Code). Despite every effort being made to find a solution through the Code, an accounting solution has not been found that satisfies all stakeholders for the amount to be derecognised. The government, therefore, undertook to review the necessity for an accounting statutory override whereby, under the Local Government Act 2003, it may make provision for local authority accounting practices.  

The government understands that CIPFA LASAAC will continue to take forward proposed changes to the Code to address the issues associated with reporting of gross cost and accumulated depreciation, subject to CIPFA LASAAC’s own due process, further details of which can be found here. However, it is not expected that the Code can offer a solution, accepted by all stakeholders, that addresses the issue of derecognition of assets. 

Following careful consideration, the government is proposing to put in place a statutory accounting override to allow local authorities to treat the value of any replaced component of infrastructure assets as nil, without the need to further evidence that this is the case. The override also removes the requirement for authorities to make prior period adjustments to infrastructure asset balances. The override will not include any provision for matters relating to gross cost or accumulated depreciation, as these matters are anticipated to be addressed through the Code – it is important to consider the overall solution as the combined effect of the override and Code changes. Use of the override is optional, and authorities may choose not to apply it – it is for each authority to make this decision.  

It is the government’s view that this is a necessary, short-term solution to avoid the widespread qualification of local authority accounts. The government recognises that a long-term solution is required, but due to the complexity of the issue this will necessarily take time, and there is an immediate need to mitigate the risks of widespread qualifications and delays to audit. The proposed override applies to all local authority accounts for which an audit certificate has not been issued, and is time limited such that the last financial year to which it applies will be 2024/25. 

To ensure that the proposed accounting override, alongside the anticipated solutions in the Code, is effective at both relieving the ongoing delays to audit completion and in mitigating the risk of widespread qualification of accounts due to this issue, the government is conducting this call for evidence to seek views from sector stakeholders on the effectiveness and clarity of the proposed statutory override.  

Please answer the questions based on your review of the draft Statutory Instrument and associated Explanatory Memorandum (links below).