Comment / Easing the part-year accounts headache

25 January 2022 Debbie Paterson

Finance teams are used to deferrals and delays – usually, the news of a delay brings relief as it means that a knotty problem is going to be properly resolved before a change is implemented or that there is simply more time to prepare. The deferral of leasing standard IFRS 16 is a case in point.

However, news of the deferral of the enactment of the Health and Care Bill by three months has dismayed many finance staff working in clinical commissioning groups and integrated care systems (ICSs).

For some, it means another three months of uncertainty about the future and employment prospects. Following the uncertainty of the pandemic over the past two years, we are all craving normality and would like to make a plan without having to consider alternative arrangements. For those affected by this reorganisation, this additional uncertainty must be taking its toll on mental health and wellbeing.

But even for those whose continued employment is assured, the news of a three-month delay is not necessarily good news. It does give more time to get the transition right, which, for those putting in place strategies and governance arrangements without sight of the final statute, is good news.

However, for those tasked with preparing the accounts, it is not good news at all. As colleagues in the provider sector that have merged or changed status from trust to foundation trust will confirm, the preparation of two part-year sets of accounts is far more complex than the preparation of a full year set.

A three-month delay means that the part-year CCG accounts are likely to be prepared over the summer of 2022. CCG staff will be trying to put in place all the necessary arrangements to enable a smooth transfer of functions to integrated care boards (ICBs) as well as preparing the part-year accounts and taking a holiday or covering for colleagues’ annual leave.

Materiality needs to be reconsidered for a part-year set of accounts. There is a risk that balances that have never been material become so when materiality is calculated with reference to three months’ worth of income or expenditure rather than 12.

Balances with other NHS bodies will need to be agreed at the end of quarter one – the one quarter when the agreement of balances process is not normally run. Provider colleagues may be unaware of the importance that the quarter one balances will have if the statute is enacted from 1 July.

It is also likely that by the time the accounts are signed off, estimated liabilities will have been settled, so the estimate will need to be adjusted. The period in which post-balance sheet event adjustments can occur will be longer, meaning that the draft accounts may continue to be amended throughout the year. Colleagues still working on the 2020/21 national accounts over Christmas will attest that the further the distance from the year-end, the harder the audit feels.

It would be lovely if auditors could sign off part-year sets of accounts as they are completed over the summer of 2022. But the reality is that most CCG auditors will be working on the local government accounts so are highly unlikely to be available. The pandemic, plus regulatory pressure on auditors, means that it is going to take several years for the audit timetable to be back to usual even without a new audit being added into the mix. Where CCGs have not merged, it may be that the closing part-year accounts are audited by a different firm to the opening part year accounts of the ICB.

Even if auditors had the capacity to audit the part-year accounts, they may not be able to. The audit opinion references the Group accounting manual for the period and this is not finalised with all of the FAQs until after the year-end it relates to.

At this stage, it is to be expected that there are more questions than answers. Not all of these problems will be insurmountable, and it is good to highlight potential issues so that solutions can be identified as soon as possible. It may be that some of the work may be able to be done or set up as part of the 2021/22 close-down.

There is also the opportunity at events, such as the HFMA’s pre-accounts planning conference this week, to raise concerns and discuss them with colleagues. They may have the answers or at least have thought of ways to reduce the workload.  

To do our bit to help, The HFMA is planning to talk to provider bodies that have prepared part-year accounts to learn lessons from them. It will not take away the additional work, but it may mean issues are raised and resolved earlier.

The HFMA has produced a number of outputs to support finance colleagues working in the commissioning sector, with some due to be finalised over the next few months.

The HFMA pre-accounts planning conference is being held online on 26-27 January.

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