Financial accounting and reporting updates

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NHS providers should refer to this page for the latest updates on financial accounting and reporting. We also email updates to finance teams.

Follow @Ian_NHSI on Twitter for updates and discussion.

Quick links for 2019/20

NHS Improvement timetable letter 2019/20 Available here.
DHSC Group Accounting Manual (GAM) 2019/20 Available here
FT Annual Reporting Manual (ARM) 2019/20 To follow
DHSC agreement of balances Available here

International Financial Reporting Standard (IFRS) 16 Leases

Our IFRS 16 guidance now has its own webpage. The latest updates will listed on this page.

FAQ on IFRS 16 impact assessment form, 3 January 2020

The IFRS 16 2020/21 impact assessment TAC form is due for submission on 15 January. These points cover questions we have received:

  • [Added 3 January] Tab 19B Revenue - gain on new peppercorn leases row: A formula error in cell K18 means that the effect of IFRS 16 on operating income is not being computed correctly. A fixer will be issued for this next week.
  • [Added 3 January] Cover sheet: Please ignore reference to approval on the Self Certification tab - this is not relevant to this return.
  • [Added 2 January] Tab 19B Revenue – table B2 impact rows: In the unlikely event that a provider forecasts a DEL impairment on a peppercorn leased asset, this will be double counted in the 'impact on surplus/deficit’ row, affecting the RDEL row as well. Given this will be rare, we are not planning to issue a fixer for this. The formula in the ‘impact on surplus/deficit’ row will be corrected for the version of this tab included in the financial planning return.
  • [Revised 2 January] Tab 19B Revenue – table B2 PDC dividend row: This row should be completed on the basis of the whole PDC dividend charge (for total average relevant net assets), in order for other checks in the form to work correctly. The most important thing is for the form to compute the estimated impact of IFRS 16, so if you have not yet computed a forecast PDC dividend for 2020/21, please base it on last year’s charge, adjusted for the effects of leasing. When this tab appears in the financial planning return the IFRS 16 version of this number (the annual charge) will feed from its input elsewhere in the form.
  • [Added 31 December] Data sharing tab: The drop-down boxes at the bottom of this tab are not functional. These are not necessary and can be ignored: these are intended to relate to the sharing of planning information (in other forms) within systems rather than the information in this form.
  • [Added 31 December] Tab 19B Revenue – table B2 PDC dividend row: The only available cell is the ‘DHSC bodies’ column. Please enter the total figure in this cell and consider the header to relate to the counterparty for the PDC dividend in this instance rather than the lease counterparty.

DHSC Group Accounting Manual 2019/20 updates - 3 January 2020

The Department of Health and Social Care (DHSC) has published an ‘Additional guidance’ document to accompany the 2019/20 Group Accounting Manual (GAM) which includes:

  • Discount rates applicable from 31 March 2020
  • Updated Injury Cost Recovery (ICR) percentage for probability of non-recovery
  • Updates to the PDC dividend policy
  • Guidance on modified absorption transfers - this only affects two providers in 2019/20 receiving assets from NHS Property Services
  • Confirmation of accounting treatment for additional employer contribution to NHS Pension Scheme at month 12. Please see the TAC Completion Instructions for details on the approach to take in TAC forms at month 9

These changes have also been reflected in an update to the GAM itself. The documents are available on the DHSC 2019/20 GAM webpage.

IFRS 16: Accounting for previous operating leases on transition - 3 January 2020

Providers are reminded that public sector entities are applying paragraph C8(b)(ii) on transition to IFRS 16, which says for a lease previously classified as an operating lease under IAS 17, the right-of-use asset is initially measured on 1 April 2020 at an amount equal to the lease liability, adjusted for any prepaid or accrued lease payments in the statement of financial position.

In line with paragraph C7, any difference between the asset and lease liability on transition is taken to reserves. But this will only arise in very specific circumstances, including (i) recognising a peppercorn lease on transition, (ii) the right of use asset meeting the definition of an investment property, and (iii) the right-of-use asset being impaired on initial application.

For most previous operating leases (excluding short-term and/or low value), the right-of-use asset should be measured as the same as the lease liability on transition, with no entry to reserves. This is demonstrated in the DHSC worked examples scenario 7. Subsequent to this example, HM Treasury has since confirmed the incremental borrowing rate of 1.27%, unless the entity has a better incremental borrowing rate.

Please note that the DHSC lease accounting tool is primarily designed for the accounting for new leases. If an existing lease with a start date earlier than 01/04/2020 is entered, this will give a different asset and liability value as at 01/04/2020. A workaround for this is to use the lease accounting tool for guidance, inputting the lease start date as 01/04/2020. More information on this is available from the DHSC GAM mailbox.

The tools referred to above are available on the Financial accounting updates — International Financial Reporting Standard 16 Leases implementation webpage.

Month 9 Trust Accounts Consolidation (TAC) completion instructions - 20 December 2019

The TAC completion instructions document accompanies the TAC schedules included in the month 9 financial return, which is available now on trust portals.

Updates to IFRS 16 guidance — 16 December 2019

Our IFRS 16 FAQ document has been updated to add a reference to the DHSC Group Accounting Manual supplement's lease car example. The FAQ document is available at Financial accounting updates — International Financial Reporting Standard 16 Leases implementation

Updates to IFRS 16 guidance — 13 December 2019

The following updates have been made to the Financial accounting updates — International Financial Reporting Standard 16 Leases implementation webpage today:

  • implementation guide updated with details of data collections and introduction to 'agreement of leases' exercise
  • FAQs updated to add in HMT discount rate for use as incremental borrowing rate
  • publication of Department for Health and Social Care tools including lease calculation tool and worked example scenarios

The TAC return due for completion by 15 January 2020 to provide an IFRS 16 Impact Forecast is now available on trust portals. Guidance for completing this return is available below.

IFRS 16 impact forecast January 2020 - Guidance PDF, 108.5 KB

Guidance on how to complete the return due on Wednesday 15 January 2020

External audit and assurance — a guide for providers and commissioners: 13 December 2019

We have published a document which provides guidance to NHS providers and commissioners on how to meet their statutory obligation to appoint an external auditor, and sets our expectations for good governance in this area.

Incremental borrowing rate (discount rate) for IFRS 16 — 6 December 2019

The FReM interprets IFRS 16 by requiring entities to use the HMT discount rate as their incremental borrowing rate. This rate should be used in two circumstances:

  • On transition – for all existing leases not previously recognised as finance leases and not exempted under the short term or low value practical expedients. The lease liability should be calculated using the HMT specified discount rate in all cases, even where there is a rate implicit in the lease.
  • For new leases commencing after transition to IFRS 16 – where there is no rate implicit in the lease, the incremental borrowing rate should be used.

HM Treasury has confirmed that the discount rate applicable to the 2020 calendar year is 1.27%. This rate is applicable to the calendar year. A rate applicable for the 2021 calendar year will be issued in December 2020. For the purposes of 2020/21 operational plans, entities should assume an incremental borrowing rate of 1.27% for the full financial year. Where leased additions are forecast in Jan – Mar 2021 and no rate is implicit in the lease, they should be discounted at this rate.

DHSC IFRS 16 supplement - 5 December 2019

DHSC has updated the Group Accounting Manual IFRS 16 supplement to reflect final adaptations and interpretations for the public sector as set out in the FReM. The linked webpage page also contains the Department’s high level IFRS 16 implementation timetable. This is primarily aimed at DHSC's Arm's Length Bodies rather than the NHS. We have already issued an IFRS 16 implementation guide for providers so we do not expect you will need to refer to the DHSC timetable.

Timetable letter for 2019/20 - 29 November 2019

The accounting and reporting timetable for NHS trusts and NHS foundation trusts for 2019/20 is now available. A letter setting out the timetable was sent to providers on 29 November 2019.

2019/20 M07 PFR form issues — updated Wednesday 13 November 2019

Status Reference Comment
Mandatory fixer v1.19.07.0a issued on portals Tab 18. Capital Funding-GrsCpxCDEL, cell reference P192. Validation to be updated The validation currently identifies excess sources of capital funding greater than £5m only. The validation will be updated to match year to date capital spend with resources used.

2019/20 main submission dates for providers

The Department of Health and Social Care’s Financial Accounts Steering Group has approved the group financial reporting timetable for 2019/20. We will issue a detailed timetable letter in the coming weeks, incorporating accounts, monthly reporting and agreement of balances deadlines. The headline submission dates for month 9 and month 12 for NHS trusts and NHS foundation trusts are:

  • Month 9 PFR (incorporating TAC schedules) submission: Thursday 23 January 2020, noon
  • Month 12 PFR (incorporating TAC schedules) and draft accounts submission: Friday 24 April 2020, noon
  • Month 12 PFR (incorporating TAC schedules) and audited accounts submission: Friday 29 May 2020, noon

Month 6 agreement of balances

DHSC has issued the timetable for the month 6 agreement of balance exercise. Receivable bodies are required to issue receivable statements, but there is no requirement for bodies to agree balances or to report back to national bodies at month six. The agreement of balances guidance has also been updated for 2019/20. These documents are available on the DHSC website here. AoB contacts lists are available to providers on NHS Improvement portals.

IFRS 17 Insurance Contracts - 8 August 2019

IFRS 17 on insurance contracts (replacing IFRS 4) is expected to apply to the public sector from 2022. An insurance contract is defined as “a contract under which one party (the issuer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specific uncertain future event (the insured event) adversely affects the policyholder”.

IFRS 17 brings a number of changes to accounting compared to IFRS 4; a useful summary is available here. But the first step for HM Treasury and DHSC is to identify what contracts might be held that would fall under IFRS 17. It’s possible that there may be items currently considered as provisions or contingent liabilities which are in reality insurance contracts. There are a number of important parts of the definition (this list is not complete):

  • The compensation from the issuer to the policyholder could be in money or in-kind: for example fixing a broken machine
  • The future event is uncertain – which means at least one of the probability of the event occurring, when it will occur, or how much would be paid if it occurs.
  • The future event is specific to the insured party (e.g. flood damage to a building owned or used by the policyholder is specific to that party).
  • The risk around the future event existed for the policyholder before the agreement was made, and it is not financial risk such as a future change in an index.
  • Warranties provided in connection with the sale of goods and services are specifically excluded by the standard as they fall under IFRS 15. So for example we would see readmissions in the NHS as affecting IFRS 15 measurement, and not considered the provision of insurance. Employer pensions and insurance contracts where the entity is the policyholder are also excluded from IFRS 17.

We request that all NHS providers think about whether they are likely to have contracts which are likely to fall under IFRS 17, with the provider as the issuer (rather than the policyholder). If you do have, or have matters that you’re unsure about and would like to discuss further, please get in touch with us.

DHSC Group Accounting Manual (GAM) 2019/20 - 17 July 2019

DHSC has now published the 2019/20 GAM which is available here. It's a quiet year for accounting changes: a summary of changes is provided on page 6. For NHS foundation trusts' annual reports, we expect the FT ARM 2019/20 to be published in the autumn.

Publication of results from FT audit quality reviews - 17 June 2019

NHS Improvement is responsible for overseeing arrangements to review the quality of auditors’ work at NHS foundation trusts. NHS trusts are subject to separate arrangements not overseen by NHS Improvement. Each year we publish a summary of the results of the reviews to share understanding between auditor teams. NHS provider accounts teams are encouraged to consider this summary as points raised may be an area of auditor focus over the next year. The summary of results for 2017/18 is now available at https://improvement.nhs.uk/resources/review-audits-nhs-foundation-trusts.

IFRS 15 FAQs - 11 April 2019

This document contains the collated answers to IFRS 15 related queries which were received by the provider.accounts team.  This contains no new guidance but may help with any residual questions you have as you finalise your draft accounts.

IFRS 15 FAQs PDF, 190.2 KB

New accounting standards in 2018/19 - April 2019 (re-packaged December 2019)

The TAC Completion Instructions in 2018/19 contained additional annexes explaining how the disclosure requirements in IFRS 7 (upon adoption of IFRS 9) and IFRS 15 had been addressed in the TAC schedules, with additional guidance on considerations for local accounts. These are now (from December 2019) retained separately as a future reference for providers.

Addressing disclosure requirements of IFRS 7 under IFRS 9 PDF, 120.5 KB

This document was prepared to accompany TAC schedules in 2018/19

Addressing disclosure requirements of IFRS 15 PDF, 107.1 KB

This document was prepared to accompany TAC schedules in 2018/19

NHS provider example accounting policies - 14 March 2019

The NHS provider example accounting policies have been updated for 2018/19. We circulated these to providers by email on 28 February, along with a version showing tracked changes from 2017/18.

Accounting policies DOCX, 48.7 KB

Example NHS provider accounting policies

NHS trusts: annual governance statements and year end material 2018/19 - 7 February 2019

The attached document provides NHS trusts with guidance and a model format for 2018/19 annual governance statements, as well as year end statements for inclusion in the annual report and accounts. This document does not apply to NHS foundation trusts. The document includes a summary of changes from last year for the material contained in the document.

We have extracted the pro-forma statements in Word format to facilitate copying from the document.

NHS trusts - AGS and year end requirements 1819 PDF, 203.8 KB

NHS trusts: AGS and year end material 2018/19

NHS trusts - AGS and year end requirements 1819 - extracts in Word DOCX, 521.1 KB

NHS trusts: AGS and year end material 2018/19 - pro-forma extracts

Central review of NHS standard contract for IFRS 15 - 29 January 2019

The Department of Health and Social Care has led on a project to provide a review of the main features of the NHS standard contract and how IFRS 15 thinking should be applied. Chapter 5 will be the most useful part of this, explaining key elements of the NHS standard contract. Please note that chapter 7 on disclosure requirements is very focused on the requirements of the standard, rather than considering materiality for the NHS. The disclosures in our TAC schedules are designed to meet the most relevant disclosure requirements of IFRS 15, as explained in the TAC Completion Instructions. 

Agreement of Balances: Supply Chain Coordination Limited (SCC033) - 14 November 2018

The 2018/19 AoB guidance states that Supply Chain Coordination Limited is part of the Departmental Group from 2018/19 and they will be participating in the AoB exercise. The Department has clarified that this refers only to the entity itself. There are no changes to how providers should deal with goods procured from or via Supply Chain in 2018/19 compared to previous years: these will continue to be regarded as ‘external to government’ in line with paragraphs 7.13 and 7.14 of the guidance (paragraph references per AoB guidance published on 8 October 2018). We do not expect any providers to need to allocate any transactions or balances to SCC033 on TAC62. 

NHS trusts only: breakeven duty guidance – 6 April 2018

Guidance previously issued by the Department of Health and Social Care for NHS trusts’ breakeven duty requirements is no longer available online. NHS Improvement issued an updated version of this guidance at https://improvement.nhs.uk/resources/Breakeven-duty-guide-NHS-trusts. This document updates the context and some referencing in defining breakeven duty and is intended to improve clarity. However this guidance brings no changes in substance from the previous and existing arrangements in place for NHS trusts.

NHS England centralised inventory procurement - 26 February 2018

NHS England operates a national centralised system for purchasing high-cost medical devices and implants used in specialised services. These items are paid for by NHS England but physically held by providers until they are used. This stock is seen as being owned by NHS England and so is reflected in its Statement of Financial Position. NHS providers are reminded to ensure that they exclude this consignment stock from their inventory counts and it should not be included within providers’ balance sheets.

Previous financial accounting and reporting updates

These are previous updates that we've published. They are primarily relevant to foundation trusts but some may also be of use to NHS trusts. 

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