Pooled Investment Funds

November 9th, 2018

The Government has announced that it intends to:-

  • Require local authorities to account for fair value movements in financial instruments in accordance with proper practices as set out in the Code on Local Authority Accounting published by CIPFA
  • Introduce a mandatory statutory override requiring local authorities to reverse out all unrealised fair value movements resulting from pooled investment funds. This will be effective from financial year commencing 1 April 2018
  • Extend the proposed period for which the statutory override applies to five years. The Government will keep use of the override under review
  • Require Local Authorities to disclose the net impact of the unrealised fair value movements in a separate unusable reserve throughout the duration of the override
  • Introduce a 2 year extension of the unequal pay regulation.

There will be no override for the expected loss model or for the extra disclosures that the new standard requires.These changes are reflected in draft Regulations, amending the Local Authorities (Capital Finance and Accounting) (England) Regulations, made pursuant to the Local Government Act 2003.

Regulation 3 inserts a new Regulation 30AA into the 2003 Regulations. New regulation 30AA provides that a local authority need not charge to a revenue account an amount in respect of a payment to be made to an officer or employee (“E”) for work done for which E received unequal pay (where men and women were paid different amounts for similar work despite being entitled to the same amounts by virtue of Section 66 of the Equality Act 2010), until the authority pays that amount to E.

Regulation 4 inserts a new Regulation 30K into the 2003 Regulations. New Regulation 30K provides that a local authority must not charge an amount to its revenue account to reflect any fluctuation in the fair value of a local authority’s investment in a pooled investment fund. Instead, such amounts must be recorded in a separate account established and usable solely for that purpose. The fair value of a local authority investment in a pooled investment fund is determined in accordance with the “proper accounting practices” which local authorities must follow by virtue of Regulation 31 of the 2003 Regulations. This accounting treatment is not to apply to the recognition of an impairment loss to such an investment as recognised under those “proper accounting practices”, or to any disposal of such an investment, including a sale. Regulation 30K will apply for the financial years up to and including the financial year beginning on 1st April 2022.

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