IFRS 9 and Other Common Year End Problems Laura Fallon lfallon@arlingclose.com

With auditors now busying themselves with delving into local authority accounts Arlingclose thought it would be a good time to talk about some of the common problems and pitfalls that we’re coming across when assisting our clients with some of those year-end queries.

The new categories of amortised cost, Fair Value through Other Comprehensive Income (FVOCI) and Fair Value through Profit and Loss (FVPL) in place for 2018/19 can cause confusion. We’ve frequently seen investments being placed in the wrong category or the available for sale reserve (which no longer exists) being referred to. Another common pitfall is that the statutory override available for pooled funds in England is being applied to funds that have also been elected as FVOCI: both actions cannot be applied to the same fund.

It is also important to remember that the IFRS 9 impairment losses apply to any loan that has been made including those to subsidiary companies or soft loans made to charities. These types of loan can be large amounts and crucially have a much higher risk than a typical treasury management investment. To omit to calculate an expected credit loss on these can thus constitute a material error in the accounts, one which we’ve unfortunately seen in some authorities who have made the assumption that this calculation is not needed. We have seen a high level of scrutiny in both expected credit losses and the new fair value calculations required for subsidiary investments classed as financial instruments. High values and high inherent levels of estimation have a tendency to be a magnet for auditors! 

These are all areas in which Arlingclose can assist. We offer an accounts assurance service where we can review the financial instruments, treasury management and capital finance sections of your accounts to spot these mistakes and avoid a tangle with your auditors. We can also calculate expected credit losses on loans and fair values of subsidiary investments: we provide full workings and a report to give a detailed and independent verification of the value given.

For more information please contact Laura Fallon at lfallon@arlingclose.com or 08448 808 200.