More To SORP 2008 Than You Might Think

SORP 2008 includes several updates and requirements which will need to be carefully considered when compiling your 2009 accounts.

There has been much coverage of the headline grabbing aspects of SORP 2008 – accounting for shared ownership and mixed tenure developments. It is important to remember that a raft of other minor updates and disclosure requirements arise from the new SORP and will appear for the first time in many sets of accounts to 31 March 2009.

Furthermore, in making a prior year adjustment in respect of changes in accounting for shared ownership schemes, more pages of the statutory accounts are affected than you might first think. We discuss these, and provide advice on the necessary actions.

Related Parties

Considerably more disclosure is now required concerning related parties. Certain relationships are required to be explained, whether transactions have taken place or not, for example, relationships between parents and subsidiaries.

Transactions between related parties are required to be disclosed in accordance with FRS8, as previously. However, the SORP is much more explicit concerning the detail required.

Board members who are councillors or employees of related local authorities also require mention, including a statement that transactions between the RP and those authorities are on normal commercial terms, and that board members cannot use their position to their advantage.

OFR

Guidance on the content of the operating and financial review (OFR) has expanded. Comment should now be made on compliance with loan covenants and the SORP now includes the term "efficiency" regarding performance. This suggests that performance should be compared either to other RPs or to prior year performance.

Designated Reserves

The broad message is that the use of designated reserves is further discouraged. These should not be used unless for expenditure that is expected to be incurred in a near future period and will allow the reserve to be reversed. SORP 2008 states that: "The use of designated reserves should be limited and social landlords should only designate reserves for specific purposes and circumstances." Commentary is then required on each designated reserve that is not fully spent in the following period.

Land Acquired At Below Market Value

SORP 2005 introduced the distinction between acquisition from a public body and a private body. SORP 2008 adds a further consideration as to whether or not the land was acquired in connection with a development. If it was acquired in connection with a development then the "value will generally equate to the amount paid".

Shared Ownership And Mixed Tenure Developments

Some RPs are drafting pro-forma accounts to see the impact of any prior year adjustment at an early stage. Our reviews show that RPs have generally grasped the new approach to first tranche disposals, which now give rise to a surplus or deficit. However, we have seen much less thought given to whether there should be any restriction on surpluses as a result of mixed tenures within the scheme. The calculations are not straightforward and for any development with a mix of general needs and shared ownership, for example, the present value of the overall scheme will need to be assessed.

Further complications will arise where the different tenures are held in different group companies. On consolidation, the group perspective will need to be taken and a restriction on surplus may be required.

Those responsible for preparing the accounts also need to keep in mind the following when presenting any prior year adjustment (PYA).

• The statement of total recognised gains and losses will need to reflect the PYA (figure 2).
• The cashflow statement will need to be modified as the operating surplus will change.
• Accounting policies will need careful consideration and will need to be updated.
• Note 2 analysis in accordance with the determination will need to be modified as turnover, operating costs and operating surplus will have changed. The income and expenditure account may now include a line for 'cost of sales' and consideration should be given as to how this will be reflected in this note.

Fig 2: PYA reflected in statement of total recognised gains and losses

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.