Group accounting manual 2021 to 2022: consultation exercise

Question 1

Overview

Accepted Answer

All bodies within the Department of Health and Social Care accounting boundary (DHSC group bodies) must publish annual reports and accounts. Clear and transparent reporting helps the entity, as well as the users of the entity's annual report and accounts, understand and scrutinise the year's operations and outcomes.

DHSC (and Monitor as the regulator for NHS foundation trusts, operating under the banner of NHS England and NHS Improvement (NHSE and NHSI)) has powers to direct the form in which the annual report and accounts should be prepared, the information that should be included, and the methods and principles that should be followed in their preparation.

In determining the form and content of the accounts we must, by statute, aim to ensure the accounts present a true and fair view.

In order to achieve this, the department issues a group wide annual report and accounting manual every year, the group accounting manual (GAM), containing the requirements DHSC group bodies need to follow when preparing their annual reports and accounts.

The NHS foundation trust annual reporting manual (FT ARM) establishes the annual reporting requirements for NHS foundation trusts. The FT ARM contains the formal accounts direction but foundation trusts will follow the GAM for accounts requirements.

The GAM requires DHSC group bodies to follow the requirements of International Financial Reporting Standards (IFRS), as adopted by the United Kingdom, interpreted and adapted by the HM Treasury Financial Reporting Manual (FReM).

Therefore, the GAM only includes detailed accounting guidance where DHSC group bodies are:

required to depart from IFRS or the FReM
required to make specific disclosures in addition to IFRS and the FReM, or
faced with particular circumstances that IFRS or the FReM do not address.

Updates to the GAM follow the same principle and, on that basis, are required where IFRS or the FReM have changed, or when DHSC group bodies are required to make specific extra disclosures.

Some content for 2021 to 2022 is not yet available, such as HM Treasury discount rates. The draft GAM indicates where this is the case, and the manual will be revised later in the year once this content is known. An additional guidance document published alongside subsequent updates of the 2021 to 2022 GAM will signpost the changes made within the manual.

Question 2

2021 to  2022 consultation

Accepted Answer

This consultation relates to the draft GAM for 2021 to 2022. The documents being consulted upon can be found on the DHSC group accounting manual collection page on gov.uk.

The consultation period will run from 1 February 2021 until 28 February 2021.

The 2021 to 2022 GAM will be published in April 2021, once we have considered consultation responses and further refined the guidance offered in the GAM.

Post consultation changes will be made in collaboration with the relevant sector finance leads. The publication of the GAM is subject to approval by the Financial Reporting Advisory Board (FRAB).

Question 3

Principal changes proposed in the draft GAM

Accepted Answer

There are no significant changes to the accounting requirements for the 2021 to 2022 financial year but there are some changes to reporting requirement for the 2021 to 2022 financial year.

Changes to the GAM are therefore focussed on providing clarity regarding the changing reporting requirements and some cosmetic enhancements to enhance understandability.

This document summarises the principal changes introduced in the draft GAM.

Question 4

How to respond

Accepted Answer

Please submit your responses by 28 February 2021 via the online consultation.

Question 5

Adoption of IFRS 16 leases

Accepted Answer

IFRS 16, leases, is set to supersede IAS 17, leases, SIC 15, Operating Leases – Incentives, SIC 27, Evaluation the Substance of Transactions Involving the Legal Form of a Lease, and IFRIC 4, determining whether an arrangement contains a lease, across the public sector from 1 April 2022.

The objective of IFRS 16 is to report information that faithfully represents lease transactions and provides a better basis for users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

Specific consultation regarding the adoption of the Standard by HM Treasury took place in previous financial years. DHSC group wide consultations have taken place to coincide with the publication of IFRS 16 Exposure Drafts by HM Treasury and as part of the recent GAM consultations.

Given the material nature of leasing arrangements entered in to across the DHSC Group, across the public sector more widely and adoption by entities who follow UK adopted IFRS in accordance with the Companies Act 2006, IFRS 16 application guidance has already been published and regularly updated by HM Treasury, DHSC and NHS England and NHS Improvement.

As part of recent GAM consultations DHSC consulted on an IFRS 16 supplement. This supplement served to give group bodies an early indication of the level of guidance intended to be offered on application of IFRS 16 by the DHSC Group, as well as indication of specific accounting policies to be employed by the DHSC Group. The latest version of the supplement was published as part of an IFRS 16 implementation guidance publication in December 2019.

The supplement has been revised to reflect the most recent updates to HM Treasury guidance and enhance the existing guidance contained within the document. This includes:

refinement of summary budgeting impact guidance to go into chapter 2 of the 2022 to 2023 GAM
update regarding the approach to accounting for PFI arrangements on the implementation of IFRS 16 in 2022-23
enhancement of the guidance to be provided in chapter 4 Annex 11 of the 2022 to 2023 GAM and update to the guidance referencing the FRAB determination concerning approach to irrecoverable VAT
update to guidance relating to chapter 5 and chapter 5 annex 1 to reflect revised guidance relevant to chapter 4 of the 2022 to 2023 GAM

This consultation represents a further opportunity to comment on the DHSC Group approach to IFRS 16, prior to formal publication of the 2022 to 2023 GAM in April 2022. Various consultation questions enable entities to consider the differing aspects of IFRS 16 guidance in turn.

Consultation questions on the IFRS 16 GAM guidance

Do you have any further comments regarding the HM Treasury interpretations and adaptations for IFRS 16?

Do you have any comments regarding the transition to an IFRS 16 measurement basis for the valuation and disclosure of PFI liabilities in alignment with IFRS 16 adoption across the public sector in 2022 to 2023?

Do you have any comments regarding the guidance offered in the group accounting manual for entities acting as a lessee under IFRS 16?

Do you agree or disagree with the accounting policy approach mandated in the group accounting manual of not applying IFRS 16 to other intangible assets not covered by paragraph 3 (e) of the Standard?

Do you have any comments regarding the guidance offered in the group accounting manual for entities acting as a lessor or intermediary lessor under IFRS 16?

Do you have any comments regarding the guidance offered in the group accounting manual concerning disclosure requirements under IFRS 16?

Do you have any further comments regarding IFRS 16 application described in the group accounting manual?

Question 6

Changes to fair pay disclosures stemming from the 2021 to 2022 FReM

Accepted Answer

The 2021 to 2022 FReM makes revision to the guidance surrounding the single total figure table and revises the disclosure requirements in relation to the fair pay disclosure.

The remuneration reporting guidance in the GAM underwent updates in 2017 to 18 and 2018 to 2019. The FReM is now providing some of the enhanced guidance that is already detailed in the GAM concerning the single total figure table, such as disclosure relating to the recovery or withholding of sums, disclosure requirements regarding taxable benefits and requirements when additional columns are set out.

FRAB paper 142 (08) confirms that the changes made are to improve guidance provided in the FReM than introduce new reporting requirements around the single total figure table. As such further revisions to this area of the remuneration reporting guidance in the GAM is not being proposed.

However revision is being made in the GAM to replicate the revised disclosure requirements relating to Fair Pay Disclosures in the 2021 to 2022 FReM.

Disclosures in relation to fair pay in the 2021 to 2022 FReM more closely follow the requirements prescribed in regulation by requiring entities to disclose:

percentage changes of the highest paid director components of the single total figure table and the percentage change for the corresponding components of the single total figure table taking the employees of the entity as a whole
as well as the median pay, the 25th and 75th percentile pay ratio must also be disclosed

The guidance in the FReM identifies that where these disclosure requirements are new for 2021 to 2022 the provision of a prior year comparative is best practice but not mandated. This approach is replicated in the GAM guidance.

Consultation questions on the updates to elements of the remuneration reporting therefore stem from the revisions made to the 2021 to 2022 disclosure requirements in the FReM

Do you have any comments on the revised disclosure requirements relating to fair pay that are described in the FReM and replicated in chapter 3 of the group accounting manual?

Do you have any comments on the guidance provided in relation to the revised fair pay disclosure requirements in chapter 3 of the group accounting manual?

Do you have any further comments in relation to chapter 3 of the group accounting manual?

Question 7

Other changes to the 2021 to 2022 GAM

Accepted Answer

Changes have been made to the draft GAM that users should note:

an additional paragraph giving clearer guidance on performance reporting and incorporating performance against national quality indicators has been added in chapter 3 of the GAM
the GAM refers to UK than EU adopted IFRS
the GAM has been subject to cosmetic updates which seeks to improve readability of the document by breaking down longer paragraphs to enhance the impact of key messages

Consultation questions on other changes made to the GAM

Do you have any comments on other changes made to the group accounting manual?

Do you have any other general comments on the draft group accounting manual?

Question 8

Summary of consultation questions

Accepted Answer

Do you have any comments regarding the HM Treasury interpretations and adaptations for IFRS 16?