Flexibilities roll over for accounts but further guidance expected

Unlike 2019/20, it isn’t a last-minute scramble for changes to the reporting requirements and we know most of the questions that need answering. It’s just that we don’t know all of the answers yet.

We do know that the flexibilities introduced in 2019/20 to make the preparation of the annual report and accounts less onerous are carried forward to 2020/21.

This means that the performance analysis and the quality accounts can be omitted from the annual report – quality reports are also omitted for good rather than as a temporary measure. Sickness absence data and staff turnover percentages can be replaced with a link to NHS Digital’s website as long as the website includes that organisation’s data.

The FAQs issued by the Department of Health and Social Care in relation to the Group accounting manual (GAM) in early January also provided the usual information about discount rates and the probability of non-recovery of injury cost recovery scheme income.

The NHS foundation trust annual reporting manual has now been published with very little change to last year, but it should be brought to the attention of the people that prepare the annual report.

The IFRS 16 leasing standard has been deferred again and will now be implemented from 1 April 2022. This means that it will be necessary to make the IAS 8 disclosures about accounting standards that have been issued, but are not yet effective.

This includes any ‘known or reasonably estimable information relevant to assessing the possible impact that application of the new IFRS will have on the entity’s financial statements in the period of initial application.’

Although work on the application of IFRS 16 went on the backburner during 2020/21 as finance teams managed the impact of Covid-19, there was work undertaken in 2019/20 that should be used and updated to make this disclosure as full as possible.

NHS bodies should not forget that similar disclosures should also be made about IFRS 17 Insurance contracts, although the disclosure is likely to be that the standard has been published and will be adopted in 2023/24, but the impact has not yet been assessed.

NHS England and NHS Improvement have issued guidance on the accounting treatment of centrally procured equipment and consumables (personal protective equipment) as well as accounting for Nightingale facilities.

The centrally procured equipment and consumables will have to be reflected in the accounts of the NHS body that is using or has used them.

While the assets were bought centrally, they have been handed over to provider bodies that have taken control of them, and also get the economic benefits from using them, as they are used to provide healthcare services.

The arrangements look complicated and will need some administration but, basically, the Department will provide each NHS body with the information on the equipment and consumables they think they have provided to that body.

The NHS body will need to validate that information so that the final information can be provided in early April to allow NHS bodies to make the necessary accounting entries.

As the equipment and consumables are provided free of charge, there will be equal and opposite entries, so the impact on the bottom line should be neutral.

Where the NHS body has not used the consumables at the year-end – the gain will be recognised in 2020/21 but the cost in 2021/22. The financial performance metrics used by NHS England and NHS Improvement will be adjusted to reflect this.

The accounting guidance for consumables is slightly different for those NHS bodies that do not usually recognise inventory in their accounts because it is immaterial. Again, the impact on the bottom line will be neutral.

Where NHS bodies do hold inventory, they need to consider how they will satisfy themselves of the accuracy of the year-end balances and whether that balance is likely to be material.

Where balances are material, auditors are required to attend stock counts – this resulted in qualifications of audit options in 2019/20 where stock counts were either not held or could not be attended due to the first lockdown.

If inventory is likely to be material, then NHS bodies should start to consider what arrangements they can put in place and how these might change nearer the year-end.
It is also something that should be discussed with auditors.

Finally, for those bodies that are hosting a Nightingale facility, the guidance sets out the accounting arrangements and the disclosures that will be required.

NHS England and NHS Improvement are very clear that this guidance will be updated as decisions are made – particularly around holiday pay accruals and provisions for the Flowers case on overtime and holiday pay. Discussions with auditors are taking place around going concern and valuations.

While these issues are being considered and discussed nationally, this does not mean that no work should be done at an NHS body level. These are all issues that need to be considered locally and that bodies may want to discuss with their auditors.

There will also be another series of FAQs issued by the Department that is expected to include updates on the PDC dividend calculation, disclosure of off-payroll arrangements, disclosures around Nightingale facilities and accounting for centrally procured equipment and consumables.

Debbie Paterson is HFMA policy and technical manager