Most local authorities will fail to make the transition to International Financial Reporting Standards (IFRS) this year, an auditor has warned.

Today, the Audit Commission revealed in its 11-page report Countdown to IFRS: Implementation in Local Government that only one in seven local authorities was on course to make the transition to IFRS in time for their 2010/11 accounts. It said the biggest challenges for councils were on the financial reporting of properties and leases. Councils need to move to IFRS this financial year.

However, the commission said one in five councils was having serious problems meeting this target, and that more than three in five were having minor problems.

There are major changes in the requirements for the basis of valuations for properties. Authorities will have to separately identify and account for components of a fixed asset, where each element of a building will have depreciated separately.

This means that a council with a building with lifts and a boiler system will need to report the value of the lifts and boilers separately from the fabric of the building. Assets will need to be recorded using this method from 1 April.

Councils will also need to review lease arrangements that involve the use of an asset, including land and buildings, to ensure it is treated correctly under IFRS.

The commission is planning to publish further briefing papers over the coming month on the reporting of leases, property and employee benefits.

To read the full report click here: Countdown to IFRS – Feb 2010

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