Consultation outcome

Group accounting manual 2021 to 2022: consultation response

Updated 3 May 2022

Executive summary

1.1 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.

1.2 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. 

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

1.4 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. 

1.5 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.

1,6 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).

1.7 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

• faced with particular circumstances that IFRS or the FReM do not address

1.8 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.

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

Background to this consultation

2.1 This consultation related to the draft GAM for 2021 to 2022. The consultation period ran from 1 February 2021 until 28 February 2021. Proceeding the consultation period, the revised GAM has been subject to further assessment by HM Treasury’s Financial Reporting Advisory Board (FRAB) to clear the final draft.

2.2 Detailed feedback has been received from the user and audit community as well as technical experts, which has helped inform and enhance the 2021 to 2022 GAM. The proceeding sections of this document summarise the technical question posed, responses received and the department’s action.

2.3 Following this consultation and after consideration by FRAB, the 2021 to 2022 group accounting manual was published on 12 May 2021.

Details of consultation questions and responses

Adoption of IFRS 16 leases

3.1 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.

3.2 Specific consultation regarding the adoption of the standard by HM Treasury took place in previous financial years. DHSC group-wide consultations coincided with the IFRS 16 exposure drafts published by HM Treasury.

3.3 With the adoption of IFRS 16 on 1 April 2022 for the GAM, the 2021 to 2022 GAM consulted upon continues to employ International Accounting Standard (IAS) 17 in accounting for leases.

3.4 Consequently, alongside the draft 2021 to 2022 GAM, the department consulted on a revised IFRS 16 supplement, which has been published to provide early indication of the level of guidance to be offered in the 2022 to 2023 GAM, as well as the specific accounting policies to be employed by group bodies.

3.5 The supplement has been consulted on over a number of years now. It continues to be refined in light of evolving HM Treasury guidance on the application of IFRS 16, and supplemented in various areas accordingly. For the iteration consulted on as part of the 2021 to 2022 process, this included refinements to chapters 2, 4 and 5.

Consultation questions on the IFRS 16 GAM guidance

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

Summary of responses

3.6 Feedback received reflected the fact that the respondents had already had an opportunity to provide their feedback and comments in earlier consultations held on GAM 2019 to 2020 and GAM IFRS 16 supplement. A request was made for the supplement to be updated and published ahead of the 2022 to 2023 GAM, which was done as part of a refresh of IFRS 16 preparedness plans in autumn to winter 2021.  

DHSC’s decisions

3.7 The department will continue to liaise with HM Treasury on finalising the accounting and budgeting approach to IFRS 16. This will enable robust guidance to be developed in the GAM around all of the proposed public sector interpretations and adaptations of IFRS 16, and help to assist DHSC group bodies applying IFRS 16 and, where possible, alleviate the reporting complexities and pressures.

Do you have any comments regarding the transition to an IFRS 16 measurement basis for the valuation and disclosure of PFI liabilities?

Summary of responses

3.8 Comments from the respondents focused on the guidance to be provided, which will aid preparers in working through the implications of this change. The timing and extent of guidance were key concerns cited by respondents.

DHSC’s decisions

3.9 The department is acutely aware of the potential impact the transition to an IFRS 16 measurement basis will have on entities that have been reliant on a longstanding private finance initiative (PFI) model. The department has emphasised the importance of guidance in this area during FRAB meetings and has discussed the approach to guidance with the Chartered Institute of Public Finance and Accountancy (CIPFA), the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) and HM Treasury.

Do you have any comments regarding the guidance offered for entities acting as a lessee?

Summary of responses

3.10 The responses were supportive of the guidance provided and identified potential areas for further refinement in explaining how transitioned leases can incur capital departmental expenditure limit (DEL) impacts and in reducing cross-references to the FReM.

DHSC’s decision

3.11 DHSC is grateful for respondents continuing to identify how the guidance offered by the department can continue to be refined. Refinements of the guidance were reflected in subsequent updates of the IFRS 16 supplement published.

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?

Summary of responses

3.12 The majority of the responses support the decision to not apply IFRS 16 to other intangible assets.

3.13 One respondent expressed a concern that there is a widening mismatch between budgetary impact of tangible assets and intangible assets, which are increasingly more revenue in nature, and observed that, by mandating that IFRS 16 cannot be applied to intangible assets, there is less scope for capitalising spend on IT or digital contracts.

DHSC’s decision

3.14 Given the broad support noted by the respondents, we are content that IFRS 16 should not apply IFRS 16 to other intangible assets not covered by paragraph 3 (e) of the standard. The evolving nature of the budgeting currencies required for the procurement of intangible goods and services is a matter that is routinely discussed with delivery partners such as NHSX.

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?

Summary of responses

3.15 Respondents provided a number of suggested refinements to the guidance, which included providing additions to the illustrative examples provided in the guidance and offering further detail around lease modification.

DHSC’s decision

3.16 While keen to not overcomplicate the illustrative examples provided, the department is grateful for the insights of the respondents and has made minor adjustments to the examples referenced by respondents. Further detail regarding the instances in which modification take place has been added to the guidance.

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

Summary of responses

3.17 No substantive responses were received.

DHSC’s decision

3.18 Disclosure in accounts is a matter that has been addressed in previous consultations so the lack of further responses on this matter is not surprising.

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

Summary of responses

3.19 Comments from respondents included suggested enhancements to guidance around sale and leaseback, the applicability and potential inconsistency around VAT recoverability to the £5,000 low value threshold, and various areas in which grammar and flow of the guidance could be refined.  

DHSC’s decision

3.20 The department is grateful for respondents identifying further improvements to the guidance provided.  

3.21 The department will continue to consider whether the materiality and complexity of sale and leaseback under IFRS 16 requires further guidance, and has consulted on this point specifically in the 2022 to 2023 GAM consultation.  

3.22 Regarding the inconsistency of the threshold between leased and owned assets, the FRAB determination to apply International Financial Reporting Interpretations Committee (IFRIC) interpretation 21 to leased assets that incur irrecoverable VAT charges already creates an inconsistency in the wider valuation approach between leased and owned assets. The department included detail in the example accounting policy to explain to the user the inconsistency in approach to VAT between leased and owned assets for this reason. 

3.23 The department’s preference would be consistency in approach to valuation of leased and owned assets to allow greater comparability, but as this matter has been considered in detail by FRAB, the department considers it appropriate to maintain the inconsistency in approach to the low value threshold as part of the wider inconsistency between leased and owned assets.

3.24 The guidance published post-consultation contains various corrections for grammatical errors identified.

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

3.25 The 2021 to 2022 FReM revises the disclosure requirements in relation to the fair pay disclosures to 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 average percentage change for the corresponding components of the single total figure table taking the employees of the entity as a whole

• the 25th and 75th percentile pay ratio in addition to the median pay ratio

3.26 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 changes to fair pay disclosures stemming from the 2021 to 2022 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?

Summary of responses

3.27 Responses received identified that the HM Treasury requirements could be articulated and visualised more clearly in the GAM, as well as make reference to how subsidiaries are to be treated and provide a clear expectation as to whether annualised figures are to be used for in-year changes.

DHSC’s decisions

3.28 The department has made revisions to the guidance around the revised fair pay disclosure requirements in the GAM that was published, and has fed back to HM Treasury on the comments received in this area. This will help inform HM Treasury’s update to the previously relevant ‘Hutton Guidance’, which provided additional detail in regards to compilation of the fair pay disclosures.

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

Summary of responses

3.29 Responses received recommended further guidance around calculating elements of the new disclosure requirements as well as suggestions for refinement of the guidance.

DHSC’s decisions

3.30 The department fed back to HM Treasury on the comments received in this area, to help inform HM Treasury’s update to the previously relevant ‘Hutton Guidance’, which provided additional detail in regards to compilation of the fair pay disclosures. This informed the finalisation of the guidance in the 2021 to 2022 GAM in this area.

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

Summary of responses

3.31 Responses received included recommendations to provide further clarity over the scope of off-payroll reporting recently revised by HM Treasury and Cabinet Office, additional refinement to remuneration guidance in relation to the pensions tables, as well as other minor refinements to improve the usability of the guidance in chapter 3.

DHSC’s decisions

3.32 The department made a number of minor refinements to the guidance provided in chapter 3 of the GAM prior to its publication in May. The department is also aware of further issues discussed in relation to the remuneration reports during the year-end audit process and has provided revision to the guidance in light of this as part of the in-year update process.

Other changes to the 2021 to 2022 GAM

3.33 Various other changes had been made to the GAM in light of updated guidance around off-payroll disclosures, standard-setters applicable to UK and various other minor adjustments.

Consultation questions relating to other changes identified in the GAM

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

Summary of responses

3.34 No comments were made.

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

Summary of responses

3.35 Responses received focused on additional guidance that could be provided around going concern, reducing cross referencing, the move from annual audit letters to annual auditor reports and further enhancements that could be made in regards to the guidance around the remuneration report.

DHSC’s decisions

3.36 The department made a number of minor refinements to the guidance provided in chapter 3 of the GAM prior to its publication in May. As confirmed in paragraph 3.32, further revisions to the remuneration guidance are being considered.

3.37 Prior to the finalisation of the 2020 to 2021 GAM, DHSC and NHSE and NHSI worked closely with the National Audit Office (NAO) and local audit representatives to revise guidance around going concern, which was reflected in the 2020 to 2021 and 2021 to 2022 GAM. Likewise, reflecting the changes in the latest code of practice published in moving to annual auditor reports was applied to both 2020 to 2021 and 2021 to 2022 GAMs.

3.38 The department seeks to continuously improve the usability of the GAM and is grateful respondents continue to identify ways in which the guidance can be made more complete and user-friendly.

Conclusion to the consultation

4.1 We are grateful for all the responses we received to our consultation. As a result of these, we made a number of changes to the 2021 to 2022 GAM before publication and finalisation of the year end 2020 to 2021 GAM.

4.2 In considering the comments received, we have needed to ensure that the guidance given in the GAM is clear and sufficient, without becoming overly detailed or prescriptive. In some cases, therefore, we have noted comments made, but have concluded that the guidance should remain as drafted. 

4.3 We would like to thank all respondents for their direct input into delivering a product FRAB was content to approve. 

4.4 There is always scope to deliver further improvements to the GAM, and we have taken away a number of issues from this consultation for consideration in drafting the 2022 to 2023 manual.

4.5 View the 2021 to 2022 GAM

Annex: list of respondents to the consultation

The following organisations responded to the GAM consultation directly through the consultation platform:

• Grant Thornton UK LLP

• Norfolk and Norwich University Hospitals NHS Foundation Trust

• Healthcare Financial Management Association

Separately, the below respondents discussed the contents of the consultation with the department during and after the consultation had concluded to help finalise contents of the guidance provided in the GAM:

• National Audit Office

• NHS England and NHS Improvement

• Financial Reporting Advisory Board