Comments from ACCA to the National Housing Federation
12 February 2014.
1. Is there any section of FRS 102 that is not addressed in the SORP on which you feel additional guidance or interpretation is needed for the social housing sector?
No. Compared to the current SORP, the proposed SORP is less of a ‘stand-alone’ document for reference, and Associations will now need to refer more to standard UK GAAP (in this case, FRS 102). It may well therefore be advisable for the SORP to include ‘signposts’ to the relevant areas of FRS 102, and to mention in the introduction the need to refer to FRS 102.
2. Do you agree with the exemption being included in the housing SORP?
No. ACCA understands that certain providers have a predominantly charitable purpose, and that the sector will, in general, benefit from adopting a consistent approach. However, there are other considerations which indicate that a choice of SORP may be necessary. For example, small almshouses may or may not use a Housing Association as their managing agent. In the former case, it is likely to be appropriate to allow them to adopt the Housing Association SORP.
We suggest that the SORP Working Party considers further the extent to which a choice can be permitted of which SORP to adopt.
3. Do you agree with the restriction set out in paragraph 3.8 of the SORP to only permit a single Statement of Comprehensive Income in the presentation of a social landlord’s income and expenditure?
Yes. We support this change, which has a number of benefits. It will facilitate the reporting of movements on reserves, and will provide a more concise method of reporting total income, without apparently removing any important items from the face of the Statement.
4. Do you agree with the principle that the SORP provides high level guidance on the content of a business review rather than prescribing the information and the format of the narrative reporting to be included in the financial statements?
Yes - we agree with the principle that guidance should be at a high level.
5. Do you consider there is any further information on narrative reporting that social landlords should be required to include in their financial statements which is not set out as a requirement in the SORP?
Yes. ACCA would support additional emphasis in the SORP on the benefits of narrative disclosures which are concise, whilst remaining informative.
Regulators require or encourage narrative reporting which covers additional matters to those in the Strategic Report, such as Value For Money. We do not believe that it is desirable (or probably even possible) for the SORP to encompass all of these additional reports. We would however, encourage the Working Party to consider establishing principles as to how this information should be combined with, or kept separate from, Strategic Report information, in the interest of overall clarity.
6. Does Section 6 of the SORP provide sufficient guidance to understanding the general principles and requirements of Sections 11 and 12 of FRS 102?
Yes. Specifically with respect to financial instruments, where the draft revised SORP principally refers users to sections 11 and 12 of FRS 102, we acknowledge that the SORP cannot cover these comprehensively without a great deal of additional detail. On the other hand, a summary approach involves the risk that Associations may then fail to consider some of the more complex areas of the agreements they have entered into.
7. Do you agree with the conclusion of the SORP Working Party that defining ‘held for social benefit’ will risk being too narrow and prescriptive in terms of what should be classified as property, plant and equipment and will not be able to take account of the various different tenure types in the housing sector currently and in the future?
Yes. The main issue here is whether Associations will be able to categorise with certainty properties held for social benefit from those which are not. In general, we believe that the draft SORP does provide sufficient guidance to achieve this, for example, in para 8.6 where a development contains mixed tenures, such as a building with social housing flats above shops let on a commercial basis.
However, the distinction, and indeed the consequences for impairment, may not be as clear where there are different types of tenancies which are also linked, such as commercially-let units whose income is used to part-fund social housing. Appropriate guidance might be provided by expanding the scenarios given in the example to para 8.10, which currently deal with more straightforward situations.
8. Do you agree with the principles set out in paragraphs 11.13 to 11.16 of the SORP in relation to the recycling of grants?
Yes.
9. The worked example accompanying this section of the SORP sufficiently clear to explain how such transactions must be accounted for? If no, please explain why not in the comment box below.
Yes.
10. Do you agree with the approach taken in the SORP for accounting for government grant?
Yes - see our comments on Qu. 11 below.
11. An alternative approach would be to allow a choice of accounting treatment as set out in Section 24 of FRS 102 and leave it up to individual social landlords to make a choice over accounting for government grant using the accrual model or performance model regardless of their accounting policy for housing properties. To allow a complete choice will lead to a greater degree of accounting inconsistency in the sector. Do you believe this alternative approach is more appropriate for the housing sector?
No. ACCA believes that the SORP Working Party should consider whether exceptions should be permitted from the required accounting models for grants, if this is justifiable, and subject to disclosure of the justification in the financial statements. For example, where properties are transferred in a state of disrepair, grant may not attach to the structure of the properties as a whole, but to a number of components as part of an improvement plan. In this instance, the accrual model would be more complex to apply than if the grant is for the structure of newly-built property as a whole.
12. Do you agree with the approach taken in the SORP in amortising government grant for housing properties over the useful economic life of the property’s structure?
Yes.
13. If not, do you agree with the alternative approach of a composite amortisation rate based on the structure and individual components of the housing property?
No. The amortisation method in Qu. 12 is consistent with the allocation of the grant to the structure as a whole.
14. Is further guidance required for the measurement of recoverable amount?
Yes. ACCA has concerns that the method in the SORP for estimating recoverable value will potentially result in write-downs in too many cases, especially for newer properties in the early stages of being depreciated. Consequently, whilst EUV-SH appears at first to be a logical approximation to fair value, the recoverable amounts likely to be established raise doubts over this methodology.
These concerns are notwithstanding the fact that recoverable amount is only estimated when there is an indication of impairment. In view of the concerns, we believe that further consideration, and not just the provision of further guidance, is needed for the measurement of recoverable amount when there is an indication of impairment.
In our response to Qu. 7 above, we have also raised a general concern about a potential complexity in considering impairment in mixed-use developments.
15. Do you agree with the inclusion of unamortised grant when calculating the carrying amount of housing properties as set out in paragraph 14.19 of the SORP? If not, please explain why not.
Yes.
16. Do the paragraphs above provide clear guidance on the accounting for stock swap transactions?
Yes. ACCA believes that the guidance is sufficiently clear, including the treatment of the transferred grant under the EUV-SH method. We also draw attention to our concerns about the role of EUV-SH in determining recoverable amounts (Qu. 14).
17. Does the worked example that follows these paragraphs make it clear how it is expected that such transactions would be reflected in the financial statements? If not please explain any additional guidance that is required for accounting for stock swap.
Yes.