Feature / Finance explained

Segmental reporting

NHS providers have traditionally reported their accounts on the basis of one single segment of operations – healthcare – rather than breaking that segment down further. However, the introduction of international financial reporting standards (IFRS) in 2009/10 raised concerns that, in order to comply, NHS trusts and foundation trusts would in future need to take a more detailed approach.

In particular, IFRS8 required organisations to report in their annual accounts in the same way as the organisation reported to the chief operating decision-maker – usually the board. Put simply, if an organisation reported financial performance to the board by segments – rather than just the performance of healthcare services overall – it should also publish its accounts in this way.

Providers were concerned on two fronts. First, there is a time and resources issue. But perhaps the biggest issue is a reluctance to disclose potentially revealing commercially sensitive information to competitor organisations. (This is a growing issue at a time when the service is pursuing a policy of any qualified provider.)

Most organisations continued to report a single segment in 2009/10 and beyond. An HFMA survey in early 2011 (of 80 providers, predominantly foundation trusts) found that just one in five providers reported at a more granular level in the first year of the new rules.

However, foundation trusts insist that the issue has not gone away. In fact as organisations get service line reporting more embedded, many of them are concerned that there will be increased pressure to produce segmented accounts.

FT regulator Monitor appears keen. Some organisations argued (in the 2011 survey) that they only reported expenditure by service line – particularly in the mental health sector, where contracts have remained on a block basis – and so real segmental reporting was neither possible nor meaningful. However, Monitor has suggested in guidance that in these circumstances ‘reportable segments should be identified instead by reference to expenditure’.

The survey suggested that some auditors were growing more interested in the issue and requiring detailed explanations where single segment approaches had been taken. And perhaps unsurprisingly there was some evidence of a common approach being taken across audit firms. PricewaterhouseCoopers, for example, was the auditor for half of the segmental reporters, albeit based on a relatively small sample.

The HFMA FT Technical Issues Group is planning to conduct a further survey this autumn to help understand how the picture has changed and how providers are planning to report in future.