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Housing SORP

Response by the Council of Mortgage Lendersto the National Housing Federation consultation

Introduction 1. The CML is the representative trade body for the first charge residential mortgage lending industry, which includes banks, building societies and specialist lenders. Our 119 members currently hold around 95% of the assets of the UK mortgage market. In addition to lending for home ownership, the CML’s members also lend to support the social housing and private rental markets.

2. The work of the CML in the UK housing association sector is led by our Social Housing Panel which comprises larger banks and building societies providing commercial loans, capital market funders and institutional investors. A list of the Panel’s current membership is provided at Annex A. This response is provided on behalf of our Social Housing Panel as a group, and it should be regarded as having the full support of each of those institutions, who may also respond individually.

3. We welcome the guidance and approach proposed, and believe the current proposals represent the most appropriate solution, subject to buy-in from the sector.

Responses to the NHF Housing SORP Survey 4. The consultation takes the form of a survey which we have completed online. This is a summary of our responses and comments to the survey questions, which are attached in at Annex B. We have not included responses to questions 1 and 2 (about the respondent) or to supplementary questions where we have responded affirmatively to the principal question.

5. Q3. Do you agree with the SORP Working Party’s conclusion that the assessment of whether a property is held for its service potential should be consistent with the principles set out in the earlier section of the SORP for classifying a housing property as property, plant and equipment or investment property based on its intended use?

6. Yes, we agree with the conclusions of the SORP working party.

7. Q4. If the SORP permits social landlords to use VIU-SP as an alternative estimation technique in determining value in use when performing an impairment assessment, do you consider that the resulting financial statements would provide sufficient, relevant and reliable information to the users of those financial statements, provided appropriate additional disclosures were made setting out the extent to which it has been applied?

8. Yes. It will be fundamental that these disclosures are clearly and fully made by management, and that their auditors do not become complicit in allowing them to be watered down or avoided.

9. Q5. Would the use of a purely cash flow based estimate (ie VIU) in determining the recoverable amount of social housing properties provide more relevant/ reliable information for users?

10. Yes. For this to be effective stakeholders would need to have confidence in the values being used. Full supported disclosure would be required to ensure that the data was relevant and reliable.

11. Q6. Do you agree that depreciated replacement cost provides an appropriate measurement basis for assets held for their service potential?

12. Yes. For the sake of consistency and comparability, stakeholders should require that a single approach be used, with alternatives employed only in exceptional justified circumstances.

13. Q8. Is there sufficient guidance in paragraphs 14.25 and 14.26 to explain the calculation of depreciated replacement cost?

14. Yes. This is consistent with FRS102 and should be sufficient at this stage. The guidance could allow interpretation. More specific guidance might be needed after practical implementation.

15. Q10. Are the disclosure requirements of paragraph 14.42 sufficient?

16. Yes. These requirements appear to be sufficient at this stage. Practical implementation might result in further qualifications being needed once some real world cases have been published.

17. Q11. Should a social landlord be required to disclose the value in use of a cash generating unit if it chooses to use the VIU-SP estimation technique in performing an impairment assessment?

18. No. Given that VIU-SP has been a specific choice, however, the social landlord should be expected to disclose the reasons for this approach. Disclosure of the actual value is unlikely to add to this disclosure but should be left open as an option to the individual social landlord.

19. Q12. Is the redrafted impairment section sufficiently clear that an impairment assessment is only required where there is an indicator of impairment?

20. Yes.

21. Q14. Does the section setting out the indicators of impairments provide sufficient guidance to social landlords to understand when there may be an indicator necessitating an impairment assessment?

22. Yes. At this point, this appears to be sufficient. As with previous responses, however, practical implementation in the real world might ultimately drive a need for further guidance.

23. Q16. Do you agree with the guidance set out in this draft section of the SORP for determining cash generating units?

24. Yes. The principles outlined in the SORP and FRS102 are clear. We believe it is right that social landlords are given some flexibility in application but practical implementation could drive a need for more specific guidance and rules.

25. Q18. Is there sufficient guidance included within the SORP to enable social landlords to determine cash generating units within their individual business?

26. Yes.

27. Q20. Do you agree that value in use should be available to a social landlord as a method of measuring recoverable amount for the purposes of impairment?

28. Yes. Provided that there is adequate disclosure to support the calculations.

29. Q22. Do the worked examples included in the impairment section provide sufficient guidance for social landlords to apply the principles set out in the SORP?

30. Yes.

31. Q24. Is it sufficiently clear how accounting for government grant interacts with impairment?

32. Yes.

Contact 33. Please contact john.marr@cml.org.uk if you would like to discuss this submission further.

28 May, 2014.

Annex A Membership of the Social Housing Panel, as at May 2014 Funder Barclays Dexia Management Services Limited Legal & General Investment Management Lloyds Banking Group M&G Investments Nationwide Building Society Principality Building Society Royal Bank of Canada Santander UK The Co-operative Bank The Housing Finance Corporation The Royal Bank of Scotland Yorkshire Building Society