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 Available here
DHSC agreement of balances Available here

Important update 23 March 2020: changes have been made to the year-end timetable and arrangements. Please see updated timetable letter below.

International Financial Reporting Standard (IFRS) 16 Leases

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

2019/20 M12 PFR (including TAC tabs) form issues - 6 April 2020

Status Reference Comment
Fixer to be issued Tab 08a PSF, FRF and MRET, 08AACTM12; subcodes STF1201, STF1207 and STF1209. Cell references S77, S99 and S110 There are formula errors on the 'Total expected' lines for PSF, FRF and MRET on tab 08a. This error will be corrected in the upcoming fixer.

Agreement of balances M12 2019/20 agreement thresholds - updated 27 March 2020

Further to our updated timetable letter on 23 March we have worked with DHSC to review the thresholds above which entities are expected to reach agreement on agreement of balances statements. Guidance on the issuing of statements is unchanged. The new thresholds for agreement for 2019/20 month 12 are

  • Receivables statements above £500k (previously £100k) and
  • Income statements above £5m (previously £2m).

These thresholds will be reviewed again for the 2020/21 year. We are due to discuss these revised thresholds with local auditors. These have been reflected in the updated timetable letter below.

TAC Completion Instructions: month 12 2019/20 - 24 March 2020

The month 12 Provider Finance Return (PFR) form containing the Trust Accounts Consolidation (TAC) schedules is now available on trust portals. This document gives guidance on completing the TAC schedules.

Provider accounts templates were distributed by email on 6 March and are also available in 'Additional documents' on trust portals. The template will need to be re-linked to the final PFR form, following the guidance in the accounts documents.

Updated year-end accounts timetable letter - 23 March 2020, updated 27 March

In light of COVID-19 pressures, the year-end timetable for 2019/20 has changed, along with other amendments to year-end arrangements. Please see this updated timetable letter.

Updated accounts timetable letter 2019/20 - 27 March PDF, 202.3 KB

Minor amendment made on 25 March to remove reference to quality report in penultimate row in annex where timing and details are to be confirmed. Updated on 27 March to include agreement of balances agreement thresholds.

IFRS 16 DHSC group ‘agreement of leases’ final statement - 12 March 2020

On Thursday 12 March, we distributed final agreement of leases statement to providers by email. No further submission is required from the sector for this exercise. Please discuss with counterparties where disagreements exist: entities should aim to complete this by 27 March where possible. If you have not received this statement please email provider.accounts@improvement.nhs.uk and we can arrange for another to be sent.

NHS provider example accounting policies - 6 March 2020

The NHS provider example accounting policies have been updated for 2019/20. We circulated these to providers by email on 6 March, along with a version showing tracked changes from 2018/19.

NHS foundation trusts: AGS and other extracts from FT ARM 2019/20 - 6 March 2020

To facilitate copying, this Word document extracts the model Annual Governance Statement (AGS) and other certificates/statements needed for the annual report and accounts from the FT ARM 2019/20. This is for NHS foundation trusts only. This document contains some minor updates to the statement of accounting officer responsibilities which have now been reflected in an update to the NHS foundation trust annual reporting manual (FT ARM).

NHS trusts: annual governance statement and year-end certificates 2019/20 - 6 March 2020

The attached document provides NHS trusts with guidance and a model format for 2019/20 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 - 2019/20 - extracts in Word DOCX, 45.9 KB

Extracts from the document above to facilitate copying

List of CCG mergers - update 25 February 2020

This document contains a list of CCG mergers taking effect on 1 April 2020.

DHSC Agreement of Leases exercise - update 11 February 2020

Leasing between bodies within the DHSC group is material, and the changes brought by IFRS 16 (notably the difference between lessor and lessee accounting) mean that intra-group eliminations will have an important effect on the DHSC group accounts. As a first step in this process DHSC, supported by NHS England and NHS Improvement, is launching an ‘agreement of leases’ exercise for leases between group bodies. This is not about numerical values; the exercise is for bodies to agree which entities hold leases with each other. For more information please refer to the DHSC Agreement of Leases Guidance which is attached below. This has been updated from the version previously circulated on 15 January for two additional columns included in this statement. The change in the guidance is marked in track changes.

Updates to IFRS 16 FAQs - 28 January 2020

We have updated our IFRS 16 FAQ. New questions have been added, or answers expanded, on estimating lease terms, control of assets, contracts based on paying for consumables and hierarchy of adaptations.

The updated FAQ is available on our Financial accounting updates — International Financial Reporting Standard 16 Leases implementation webpage.

Accounting for additional employer pension contributions 2019/20 - 28 January 2020

The employer contribution rate for the NHS Pension Scheme increased from 14.38% to 20.68% in 2019/20, but NHS providers have continued to pay over at the old rate with the additional 6.3% being settled centrally on their behalf by NHS England. The full 20.38% needs to be reflected in local provider accounts, with notional income from NHS England being recognised for the 6.3% element.

To facilitate year end arrangements and avoid a national data collection, for the purposes of accounts NHS England will compute the full year 6.3% figure for each provider, extrapolating from data provided by NHS BSA at month 10. We will communicate this figure to providers and populate them into month 12 TAC schedules. Based on analysis of 2018/19 data, the impact of using an estimate in this way will be highly immaterial. We have discussed and agreed this approach with the audit community. In the rare circumstances that the estimate leads to a more significant difference for any particular provider, there is a process where entities can ask for the national figures to be updated.

More details are available in the guidance document below. We have updated the guidance to include how to treat the additional contribution in the agreement of balances exercise.

DHSC Group Accounting Manual (GAM) 2020/21 consultation

The Department of Health and Social Care has issued a draft 2020/21 GAM for consultation. The draft GAM, consultation document and the online survey for responses can be found here. The consultation closes on 21 February 2020 and NHS trusts and foundation trusts are encouraged to give their views.

Foundation Trust Annual Reporting Manual (FT ARM) 2019/20 - 10 January 2020

Our FT ARM for 2019/20 has been published and is available at NHS foundation trust annual reporting manual (FT ARM). This is only applicable to NHS foundation trusts.

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.

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.

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.

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

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. 

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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