Consultation outcome

Changes to DHSC group accounting manual 2023 to 2024 consultation response

Updated 12 June 2023

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.

The Department of Health and Social Care (DHSC) and NHS England (NHSE) have 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 HM Treasury’s financial reporting manual (FReM).

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

• 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

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 the 2023 to 2024 GAM is not yet available, such as HM 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. An additional guidance document published alongside subsequent updates of the 2023 to 2024 GAM will signpost the changes made within the manual.

Background to this consultation

This consultation related to the draft GAM for 2023 to 2024. The consultation period ran from 9 February 2023 until 9 March 2023. Proceeding the consultation period, the revised GAM has been subject to further assessment by the financial reporting advisory board (FRAB) to clear the final draft for publication.

Feedback has been received from the user and audit community as well as technical experts, which has helped inform and enhance the development of the 2023 to 2024 GAM. The proceeding sections of this document summarise the technical question posed, responses received and DHSC’s action.

Following this consultation and after consideration by FRAB, the 2023 to 2024 GAM was published in June 2023.

Details of consultation questions and responses

Measurement of public private partnership (PPP) and private finance initiative (PFI) liabilities using IFRS 16

FRAB previously concluded that with the implementation of IFRS 16 across the public sector, the approach to measuring PFI liabilities as detailed in chapter 10 of the FReM was required to transition from an approach reflecting the previous leasing standard IAS 17, to one reflecting the principles of IFRS 16. It remains the case that the accounting for PFI liabilities will be based on the guidance in the FReM (which is in turn based on the lease accounting standard principles) rather than a direct application of the leasing standard itself.

One notable change in transitioning from an IAS 17 based approach to an IFRS 16 based approach to measuring PFI liabilities, relates to the fact that rather than recognising contingent rent, where cashflows have changed over the life of the arrangement, entities will be required to remeasure the PFI liability per the requirements of IFRS 16, when cashflows change due to a change in a variable payment dependent on an index or rate, that relates to the capital element of the unitary payment.

This update to the FReM was deferred from the 2022 to 2023 financial year to the 2023 to 2024 financial year, as further guidance from HM Treasury was still to be finalised. However the 2023 to 2024 FReM published in December 2022, does contain the initial elements of guidance relating to the accounting requirements on transition and on subsequent measurement. Consequently the GAM was updated for this detail in chapter 4 and chapter 4 annex 5 of the GAM.

The FReM references yet-to-be-published application guidance on the matter, which will be contextualised and built upon in the GAM and in associated guidance, which will include a reworked DHSC PFI model to incorporate the relevant measurement principles on an IFRS 16 basis. This, along with the HM Treasury guidance, will be published later in 2023.

Consultation questions on the use of IFRS 16 to measure public private partnership liabilities

Do you have any further comments regarding the HM Treasury initial guidance relating to transition and subsequent measurement of PPP liabilities in the 2023 to 2024 FReM?

Summary of responses: while respondents noted the complexity this will add to accounting for PFI, no substantive comments were made on the guidance currently in the FReM.

DHSC decision: we will continue to work with HM Treasury to ensure that guidance in and around the FReM assists and informs preparers in transitioning to the revised measurement basis for PFI liabilities.

Do you have any comments regarding the content of the guidance currently in the GAM relating to the measurement of PPP liabilities?

Summary of responses: respondents identified areas of chapter 4 annexes 5 and 11 and chapter 5 annex 1 where guidance could be clearer. This included being specific about the nature of variable payments that require lease liability remeasurement to be completed, ensuring that issues are tackled in a logical sequencing in the guidance and ensuring there is clarity and consistency regarding the accounting policies of other elements of PFI accounting that are not directly impacted by the change in approach to the measurement of a PFI liability.

DHSC decision: the GAM incorporated these points into the post consultation version that FRAB considered in March 2023. We are grateful for the comments which have helped refine updates made to the GAM.

Do you have any comments regarding the proposed updates DHSC is planning to make to the DHSC PFI model to incorporate IFRS 16 measurement principles?

Summary of responses: a number of respondents pointed to the complications that may arise due to the long standing nature of previous mechanisms used to develop PFI reporting for the financial statements. As such a clear understanding of the changes implemented by DHSC and a good lead time for entities to consider how changes impact the accounting and reporting of PFI is required. One respondent queried the consistency of the asset valuation approach and classification, considering the approach to IFRS 16 per chapter 4 annex 11 and also queried the expected approach to transition.

DHSC decision: the FReM is explicit that while initial measurement of a PFI asset will be derived in assessment of the PFI liability, the asset remains classified as an item of plant, property and equipment, subject to revaluation under IAS 16. HM Treasury has mandated that the movement in the PFI liability stemming from a lease liability remeasurement, does not reflect a capitalisable cost under IAS 16, so the opposite entry to a lease liability remeasurement on a PFI liability, will be to finance cost. This follows logically from the decision to retain PFI assets as assets accounted for under IAS 16, than IFRS 16. The FReM also confirms that PFI liabilities will be remeasured as part of transition to take account of previous index linked changes that have occurred over the life of the arrangement, in opening balances of PFI liabilities on the 1 April 2023. The GAM reflects this guidance. We will continue to reflect how best HM Treasury guidance is incorporated into the GAM.

We note and agree with the need to ensure there is clear guidance and preparatory instructions for entities completing this transition for the 2023 to 2024 financial year and are working closely with HM Treasury to finalise additional application guidance which will be reflected in the GAM with appropriate contextualisation.

Reporting updates for the group accounting manual

A number of performance reporting requirements stemming from the implementation of the Health and Care Act 2022 have been incorporated into the 2022 to 2023 GAM. Nevertheless, this consultation presented opportunity for preparers to both provide feedback on those requirements already featured in the GAM, and to provide any comment on those requirements preparers or auditors may expect further guidance regarding in the GAM.

Integrated care boards (ICBs) are subject to financial duties as outlined in the National Health Service Act 2006 as amended by the Health and Care Act 2022. These duties are listed in the NHS financial framework: ICB and system finance business rules document. Chapter 2 appendix 1 was removed for the purposes of the consultation as it historically dealt with clinical commissioning group reporting requirements. It was reinstated in the post consultation version of the GAM considered by FRAB, now providing guidance addressing ICB reporting requirements.

New governance disclosures for NHS trusts are being introduced from 2023 to 2024 which will align with reporting for NHS foundation trusts in relevant respects. In October 2022 NHS England published a new code of governance for NHS provider trusts. This applies to NHS trusts and NHS foundation trusts for the first time and is applicable from 1 April 2023. The applicable disclosure requirements are listed in schedule A of the document, from page 38. These requirements (excluding those that only relate to NHS foundation trusts) will be added to the 2023 to 2024 GAM as part of an in year additional guidance update, to apply to NHS trusts only.

Consultation questions relating to reporting updates for the group accounting manual

Do you have any comments regarding the reporting updates included in the 2022 to 2023 January 2023 update to the GAM?

Summary of responses: the majority of respondents provided no comments on this matter. One respondent provided a number of recommendations for the 2022 to 2023 year end updates to the GAM. These included:

• further revision to the mental health investment standard disclosure
• clarification in relation to trade union facility time disclosures on a part year basis
• specific ICB part year accounts and absorption transfer disclosures guidance
• additional remuneration reporting guidance for part year accounts including confirmation to approach of such aspects as cash equivalent transfer value (CETV) calculations
• the approach to and requirements of reporting for ICBs detailed in appendixes to chapter 3

DHSC decision: a number of updates to chapter 3 have been made stemming from the comments received, in particular providing confirmation of approach to remuneration disclosures for part year entities. Guidance relating to part year accounts and disclosures for ICBs and clinical commissioning groups (CCGs) has been provided in chapter 4 annex 9. In regards to the mental health spend disclosures in chapter 3, the spend has been monitored by NHSE on a financial year basis, so the figures reported in accounts as part of this disclosure will be comparable between financial years.

Do you have any comments regarding the further reporting requirements preparers or auditors may expect further guidance regarding in the GAM?

Summary of responses: a respondent requested that illustrative examples were provided to help identify the expected level of disclosure relating to the new legislative requirements stemming from the Health and Care Act, as well as confirming the importance of publishing additional reporting guidance by the end of the financial year. Other respondents identified further guidance that could be provided in relation to remuneration reporting and requested greater consistency regarding language and definitions employed in describing the remuneration reporting requirements between the GAM and the FT ARM.

DHSC decision: various clarifications have been made to the specific application of terms employed both in the GAM and FT ARM, in respect of remuneration reporting, to ensure a consistent approach stems from the guidance in both manuals. Clarifications received from HM Treasury regarding the treatment of temporary staff as part of fair pay disclosures have also been incorporated into the GAM and FT ARM. We endeavour to publish all updates to guidance as quickly as possible for both interim and year end accounts preparation and audit. We will continue to work with all stakeholders to ensure that guidance publications are brought as far forward as is practicable.

Do you have any comments regarding the additional reporting requirements for NHS trusts to reflect NHS England’s code of governance for NHS provider trusts?

Summary of responses: one respondent confirmed it would be helpful for there to be a discussion between NHSE and representatives from the audit firms on the intention for the application of the code.

DHSC decision: DHSC is supportive of this action to help ensure that both guidance and responsibilities stemming from this update to the GAM are clear.

Other changes to the GAM

Minor changes have been included elsewhere in the 2023 to 2024 GAM such as updating the expected date of IFRS 17 implementation per the FReM as agreed previously by FRAB. Beyond the matters raised by this consultation, no other material changes to the 2023 to 2024 GAM are expected.

As is referenced in the overview section certain elements of guidance such as HM Treasury discount rates will be provided later in 2023, so will form an in year additional guidance update, as will any further relevant updates to the 2023 to 2024 FReM that need to be reflected in the GAM.

Consultation questions on other changes made to the GAM

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

Summary of responses: a significant number of comments were provided by the respondents to this question. The summary of responses below are split between those relating to the specific accounting for, and disclosure of, transactions and arrangements and those relating to guidance for, and disclosure of, annual reporting requirements.

Comments received relating to accounting guidance detailed in the GAM included requests to:

• revisit the £5,000 capitalisation threshold, for further guidance around accounting for interim valuations
• make relevant updates to guidance around payment and incentive arrangements including partially completed spells and maternity pathways
• refresh guidance relating to the modified absorption transfer approach described in the GAM
• provide further guidance around the budgetary impact of accruals versus provisions
• remove transitional interpretations and adaptations of accounting standards already applied
• remove the transitional content of chapter 4 annex 11
• incorporate further references to IFRS 17
• cross reference the disclosure detail covered in chapter 4 annex 11 in chapter 5
• confirm whether 2013 procurement regulations are still applicable given the implementation of the Health and Care Act
• provide disclosure requirements in relation to shared financial duties in an integrated care system
• remove transitional and historic content within the example accounting policy note in chapter 5 annex 1

Comments received in relation to annual reporting guidance detailed in the GAM included requests to:

• provide additional clarity that the accounts templates do not form part of accounts direction of NHS trusts
• provide additional guidance in relation to staff sharing arrangements and the impact on the remuneration reporting disclosures
• list the general duties per the Health and Care Act
• provide further guidance around sustainability reporting given the requirements of the Health and Care Act coupled with the requirements in the NHS standard contract
• confirm the relevance of the government functional standards in relation to NHS bodies
• provide illustrative examples relating to code of governance disclosures to be incorporated into the GAM

The comments received also identified typos, incorrect paragraph references and potential inconsistencies throughout the GAM.

DHSC decision: DHSC welcomes the suggested amendments to the draft GAM received from respondents and has updated the GAM in various respects on the basis of the comments received.

In regards to the comments relating to accounting matters, the department has no current intention to increase the capitalisation threshold, but will review this position in light of the work being completed as part of HM Treasury’s thematic review regarding non-current asset valuation. We consider the guidance in the GAM around interim and formal valuations to be sufficiently detailed. While the transitional guidance relating to IFRS 16 has been removed from chapter 4 annex 11 and from the example accounting policy in chapter 5 annex 1, the GAM will continue to reflect the full quota of HM Treasury interpretations and adaptations which will include transitional interpretations and adaptations, to ensure consistency with the FReM. The historical references made in relation to the modified absorption transfer approach as described in the GAM remain appropriate. As IFRS 17 is yet to be applied by the FReM, it would not be correct to include further references to the standard in the GAM, beyond confirmation it is yet to be applied. The GAM now includes cross references in chapter 5 to the relevant IFRS 16 disclosures detailed in chapter 4 annex 11. We can confirm that the NHS (Procurement, Patient Choice and Competition) (No2) Regulations 2013 are still in force until the Provider Selection Regimes Regulations are in place. We will continue to consider with NHSE the need for further guidance in relation to such matters as revised payment and incentive arrangements and system financial duty disclosures, which will be incorporated via in year additional guidance updates where required. We note the request for further guidance in the GAM regarding the budgetary impact of accruals versus provisions, but don’t consider the GAM as the appropriate vehicle for this, particularly when HM Treasury’s consolidated budgeting guidance covers these matters extensively.

In regards to comments received relating to annual reporting matters, no further updates or clarifications are currently considered necessary regarding the relationship between accounts templates and directions, the approach to disclosing staff sharing arrangements in remuneration reports, or the listing of each general duty under the Health and Care Act, as the guidance currently in the GAM regarding these issues is considered sufficient and proportionate. As HM Treasury is progressing the incorporation of the taskforce on climate related financial disclosures into the FReM, DHSC and NHSE will need to consider the extent to which sustainability reporting requires further guidance detailed in the GAM, with any updates forming part of an in year additional guidance update as required. DHSC confirmed with HM Treasury that all arm’s length bodies, including NHS bodies, are expected to be complying with the government functional standards per correspondence sent to accounting officers in September 2021 and therefore it is appropriate that all entities make a statement regarding the use of the standards per the relevant guidance in chapter 3 of the GAM. The GAM is not considered the correct vehicle to house illustrative examples relating to governance disclosures but DHSC will discuss the correct location for such disclosures with NHSE.

Typos and incorrect cross references have been amended in the GAM. Consistency points raised such as the manner in which generally accepted accounting practice is referenced in conjunction with companies act requirements, have been assessed. The GAM follows the FReM in reference of these matters so is consistent with HM Treasury guidance in this respect. Equally references to the guidance on strategic reports remains linked to the 2018 publication of the guidance, as this is consistent with the approach taken in the main body of the FReM.

Conclusion to the consultation

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 2023 to 2024 GAM and the 2022 to 2023 GAM.

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 as identified above.

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

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 2023 to 2024 additional guidance updates and the 2024 to 2025 manual.

Annex 1: list of respondents to the consultation

The below respondents answered to the GAM consultation directly through the consultation platform:

• Healthcare Financial Management Association
• Manchester University NHS Foundation Trust
• Grant Thornton UK LLP
• Deloitte LLP

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:

• NHS England
• Financial Reporting Advisory Board
• National Audit Office