Minutes:
The Committee received a presentation from the Finance Manager – Commercial, Capital and Treasury which gave details of the introduction of 2 new accounting standards; IFRS 9 – Financial Instruments and IFRS 16 - Leases (for copy see file of Minutes).
IFRS 9 affected contracts relating to financial assets and liabilities, and equity instruments, and the Officer explained the impact the changes would have on accounting statements and the balance sheet. Three classifications would be required in future; amortised cost, Fair Value through Other Comprehensive Income and Fair Value through Profit and Loss and these were determined by the application of 2 tests (business model test and cash flow test).
The treatment of financial liabilities and most financial assets would be largely unchanged. The key areas of change would be for investments and equity instruments, and impairment losses.
Councillor Clark referred to future losses which would be charged to revenue each year and asked what the implications would be if losses were over-estimated. The Officer informed the Member that losses were estimates and any that were over-estimated would be reviewed in the following year’s accounts. The new standard required the Council to be forward looking, as opposed to charges to revenue as losses were incurred.
Mr Robinson asked at what point classifications would be determined, and was informed that this would be completed before the end of year accounts were finalised, and on an asset by asset basis.
IFRS 16 introduced a new type of asset to be shown in the balance sheet – Right of Use Assets. These were assets that were owned by others and dedicated by them or the Council to provide services to the Council and only the Council, through a contract, and that were significant in value and lasted more than a year. Members were informed of action required for the new standard which included an exercise to identify Right of Use assets and make arrangements to manage and account for those assets going forward. The Council was in a good position as it already accounted in this way for vehicles, plant and equipment under finance leases and PFI.
In response to questions from Councillor Carr, Members were informed that there would be no impact upon the leases for the Council’s vehicles as they were already accounted for as if they were finance leases. The waste management contract appeared to be a service and would only be brought under the new rules if there was an identifiable asset being used.
Following a query from Mr Rudd, the Officer advised that the new standard did not require previous year balances to be presented.
Following discussion it was Resolved:
That the information given be noted and the Committee be kept informed of developments.