Exclusive: Local roads financial reporting set to be updated

The Department for Transport (DfT) and Treasury are due to sit down in September with a steering group to look at updating the Chartered Institute of Public Finance and Accountancy’s (CIPFA) Code of Practice on the Highways Network Asset.

The discussions could see a move to whole of government accounts (WGA) financial reporting for local roads, Highways understands.

In April, Highways exclusively revealed that as much as £244bn could be lost from the Government balance sheet because of the decision not to move from historic costs to a Gross Replacement Cost system for financial reporting, causing consternation in the sector.

Alison Scott, head of standards and financial reporting faculty at CIPFA, told Highways that the move was prevented in part because there was no confirmation of central rates as they had not been updated in over five years.

She added that was an ‘amount of frustration’ in CIPFA and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) that they were unable to fully implement the project to update local highways financial reporting, which has been ongoing for several years.

‘The use of centrally provided rates is a key part of the project in order to use local authority inventory data to produce values. Previous rates were based upon estimates provided by engineers of the costs of building modern equivalent roads at today’s prices (these central rates have been increased by inflation). For financial reporting purposes these rates need to be updated at least every five years and tested against actual schemes to provide assurance for reporting and audit purposes.’

She added that another ‘big problem is how difficult it would be for local authorities to keep the rates under the necessary level of review and keep up assurances on the data’.

‘This would be a very easy project to put into place if local government was building roads regularly but they do not build new roads in sufficient quantity to get rates themselves. Local authorities do not have enough data to maintain the system.’

CIPFA, with Treasury and DfT, is now working towards a WGA approach to highways financial reporting.

‘We needed to draw a line under the individual authority financial reporting approach. WGA is based on current valuations but has less granularity and so is less onerous on individual local authorities, but still useful for asset management planning,’ Ms Scott said.

‘We are making good progress with Treasury. It is now in Treasury’s hands to progress implementation,’ she added.

One senior figure in local government told Highways: ‘In the days of Big Data and nano sensors it is all the more important that we hold steady with the ambition to better understand the collective value of such granularity.’

 
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