Grant Thornton urges councils to fully understand financial instruments they are using

The firm said in Local authority accounting: Avoiding pitfalls in financial instruments that many local authorities were using a wider range than before of different types of investments, loans to other parties and borrowings.

It was critical that they fully understood the implications of the CIPFA Code of Practice on Local Authority Accounting, Grant Thornton said.

Where this was not understood, local authorities might enter into arrangements where they do not fully appreciation of the implications, which could include consequences for their General Fund.

There were also risks that the accounting treatment may be incorrect, resulting in errors in their Statement of Accounts.

Grant Thornton said a fuller understanding of the requirements could improve the quality of local authority accounts, ensuring readers can understand the related risks of financial instruments and how to manage them. 

The report includes several examples of complex situations which can result in incorrect accounting if not fully understood, and explains key points about the measurement requirements for amortised cost, fair value and the recognition of impairment 

It also illustrates with examples some of the common pitfalls to avoid with financial instrument disclosures and the statutory accounting requirements applicable to them.

Mark Smulian