Councils express concern at proposed change to reporting of value of infrastructure assets

The Local Government Association (LGA) has strongly criticised a proposed change to the way the values of councils’ infrastructure assets are reported, condemning the idea as one that would waste time and money only to produce a largely meaningless figure.

It said it objected to the idea proposed in a survey by the Chartered Institute of Public Finance and Accountancy (CIPFA) that there should be a move to a depreciated replacement cost measurement basis.

This method has been described by the Royal Institution of Chartered Surveyors as ‘"the current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimisation”.

The LGA said audit and valuation of infrastructure assets had significantly contributed to delays in finalising audits of local authority accounts and so to “the current crisis in local audit”.

CIPFA’s survey for individual councils came with a statement that they should assume the longer-term approach will be based on a depreciated replacement cost basis.

The LGA said: “We strongly feel that this is not the right approach and we want to register our concern and urge…an alternative and more practical approach.”

Explaining the problem, the LGA said much financial information was generated related to value of infrastructure assets and their condition, which was used to manage their maintenance and usage.

“It is hard to see that the published accounts is the right place for such information,” it said.

Highways by their nature could never be sold and the value placed on them as a financial asset “can never be more than a notional figure, no matter how sophisticated the measurement process”.

The LGA said this meant their measurement should be as simple as possible “and one that is unlikely to be disputed or lead to additional and unnecessary work by accounts preparers and auditors”.

Using depreciated replacement cost would mean “that a great deal of time and effort will be spent producing a figure that will have no real meaning but will still need to be subject to audit.

“This will mean significant extra costs being incurred by councils as well as potentially adding to audit delays.”

A second problem would be a resulting massive increase in the notional value of highways in councils’ final accounts.

In some cases this would exceed the value of all other assets and significantly distort the figures, giving “a highly skewed picture of the finances of the local authority”, the LGA said.

It would be possible for “other areas that actually matter” to be lost or masked among these excessive values.

Instead, highways valuations could be undertaken on a standard value for each mile of road, set so that did not give a distorted view of a council’s finances.

CIPFA said when launching its survey that it had not yet taken a final decision on the longer-term solution to auditing highway values pending the survey’s outcome.

Mark Smulian