Agenda item

Agenda item

Accounting Concepts and Policies, Critical Accounting Judgements and Key Sources of Estimation Uncertainty

The report of the Deputy Chief Executive and City Treasurer is enclosed.


The Committee considered a report of the Deputy Chief Executive and City Treasurer which discussed the Authority’s accounting concepts, conventions, policies and requirements, critical accounting judgements and key sources of estimation uncertainty to be used in the preparation of the 2021/22 Annual Accounts. The details of a recent emergency Code consultation were also provided for comment.


The report set out a narrative around:


  • The basis of accounting policy
  • Requirements around disclosure in respect of the application of critical accounting policy judgements
  • A list of key sources of estimation uncertainty, including useful lives and valuations of properties which are estimated by qualified valuers, provision for business rate appeals based on claims received and previous experience of the outcome of appeals, the amount of arrears that will not be collected which is estimated based on expectations of the collection of different types of debt and the liability for future pension payments which is estimated by qualified actuaries (provided in an appendix); and
  • The details of a consultation on emergency proposals for an update of the 2021/22 and 2022/23 Codes of Practice on Local Authority Accounting in the UK, largely driven by 91% of Local Government Accounts being submitted after the statutory deadline. The outcome of the consultation resulted in a deferral of the implementation of IFRS 16 Leases for a further year and reversed the planned changes to the 2022/23 code. Whilst this outcome would not reduce the burden on Local Authorities, there would be no further complication of the leasing treatment.


The key lines of enquiry discussed in the meeting were:


  • The impact of changing interests rates and inflationary factors on matters such as pension liability, asset valuation, collections rates of council tax / business rates etc
  • The impact of the cost of living crisis on arrears arising from short term / sundry debtors such as housing rent, council tax and business rates debtors


In respect of changing interest rates on pension liability, the Deputy City Treasurer confirmed that a wide range of variables were routinely monitored and kept under close consideration through a mixture of formulaic measures and actuarial assessments in order to ensure effective management. In view of the complexity within those wide-ranging factors (eg life-expectancy, pay awards, inflationary factors, investment returns) a professional judgement call was necessary to address those uncertainties. In terms of how Local Government pensions were externally audited, Karen Murray (Mazars) explained that the National Audit Office commissioned an external expert to evaluate the approach taken by the five actuaries that are in place with a focus on the assumptions that are made across numerous factors to be satisfied that those assumptions are consistently applied, are within a reasonable range and align with the national position in terms of the approach taken.


With regard to arrears from sundry debtors, the Deputy City Treasurer explained that where the Council is seeking to recovery monies, inevitably there would be those who would default which resulted in the need for an estimate of those that would doubtfully be recovered. Due to the cost of living crisis, in addition to other economic factors, the level of ‘write off’ was predicted to be higher than usually anticipated and therefore warranted closer monitoring.




1.    To approve the accounting concepts and policies that will be used in completing the 2021/22 annual accounts


2.    To note the critical accounting judgements made and key sources of estimation uncertainty


3.   To note the outcome of the recent emergency Code consultation


Supporting documents: