Summary of all responses received Organisationss3-eu-west-1.amazonaws.com/doc.housing.org.uk/Editorial/SORP... · Ardenglen Housing Association . Argyll Community Housing Association

SORP responses –June 2014 All responses

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Summary of all responses received

Organisations

Accent Group Ltd Adactus Housing Group Limited Affinity Sutton Albyn Housing Society Limited Alliance Homes Alpha (RSL) Limited Anonymous Arcon Housing Association Ardenglen Housing Association Argyll Community Housing Association Limited Arhag Houssing Association ARK Housing Association Asra Housing Group Baker Tilly Beever and Struthers Berwickshire Housing Association Bield Housing & Care Bracknell Forest Homes Bromford Group Byker Community Trust Limited Central & Cecil Housing Trust Chartered Institute of Public Financial Accountants Chiene + Tait CHS Group Circle Housing City West Housing Trust Clyde Valley Housing Association Coastal Housing Group Coastline Housing Ltd Council of Mortgage Lenders (Social Housing Panel) DCH Deloitte Derby Homes Ltd Dexia East Thames Group Eastlands Homes Partnership Limited

EMH Group Ltd First Wessex Four Housing Freebridge Community Housing Gateway Housing Association Gentoo Group Glasgow West Housing Association Ltd Grant Thornton Grampian Housing Association Great Places Housing Group GREENSQUARE GROUP LTD Gwalia Habinteg Housing Association Ulster Ltd Halton Housing Trust Hanover (Scotland) Housing Association Hanover Housing Association Harrogate Families Housing Association Helena Partnerships Ltd Home Group Limited Hundred Houses Society Institute of Chartered Accountants in England and Wales Isos Housing Limited Jones Lang LaSalle L&Q Housing Trust Langstane Housing Association Limited livin Housing Ltd Longhurst Group Ltd Look Ahead Care and Support Magenta Living Magna Housing Group Maryhill H A Mid-Wales Housing Association Moat Homes Limited Network Housing Group Ltd

North Devon Homes Notting Hill Housing Trust One Housing Group Orbit Group Origin Housing Limited Orwell Housing Association Limited Paradigm Housing Association Ltd Plymouth Community Homes Progress Housing Group Radian Housing RCT Homes Rooftop Housing Group Limited Sadeh Lok Housing Group SAFFRON HOUSING TRUST LTD Selwood Housing Sentinel Housing Association Limited shropshire housing group Shropshire Rural Housing Association Smith & Williamson Southern Housing Group Sovereign Housing Association Spectrum Housing Group Staffordshire Housing Group SYHA Ltd Thames Valley Housing The Guinness Partnership The Hyde Group Town & Country Housing Group Trafford Housing Trust Triangle Housing Association Ltd Unity Housing Association Ltd Waterloo Housing Group Wheatley Housing Group WM Housing Group York Housing Association Yorkshire Housing Your Housing Group


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Question 1: 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?

Comments:

Accent Group Ltd An alternative approach would bring more complexity, cost and reduce the usefulness of the accounts. Adactus Housing Group Limited In general a housing association's properties are built, held and managed for social housing purposes for community benefit in line with its business objects. this is very much different to a profit making organsiation which uses its fixed assets for the generation of profit. It maybe more transparent to have a separate fixed asset category for social assets which fall outside the illogical impairment regime. Beever and Struthers The SORP could be clearer in explaining that if a property is not held for social benefit, the consideration of impairment using service potential is not appropriate. Circle Housing It would be helpful to further define the use of the production or supply of services CIPFA CIPFA agrees that this assessment should be consistent with the guidance on investment property in FRS 102 section 16. Once this determination is made, section 17 and paragraph 27.20A allow some flexibility in the approaches to valuation and impairment to be applied in the case of assets held for their service potential. While we can see that this may be helpful to preparers, we do have some concerns that it is unclear how the valuation hierarchy should be applied. Deloitte

3%

97%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

no

yes

Q1 (N=107)


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We agree that the assessment of whether a property is held for its service potential should be consistent with the principles set out for classifying a housing property as property, plant and equipment of investment property based on its intended use. Eastlands Homes Partnership Limited Consistency of approach to classifying properties (be it Service Potential, PPE, Inv Prop) is desirable. Grant Thornton Yes. However, paragraph 14.2 indicates that section 14 of the SORP is solely written in relation to impairment of assets held for their social benefit. Non-social housing assets should also follow the guidance of FRS 102.27, and therefore, the interpretation in the SORP will still be relevant. We would recommend that the final sentence is made more general to say 'The following section focusses on the consideration for impairment of assets in the social housing sector, including those held for social benefit.'

Home Group Limited We agree that the assessment of whether a property is held for its service potential should be consistent with the approach taking in classifying a property as either PPE or investment property. In arriving at a decision as to how to treat a property, a Registered Provider is obliged under the draft SORP to give consideration as to whether an asset is held for social benefit. We believe that the assessment of whether an asset is held for service potential / held for social benefit are, in essence, one and the same. We note however that similar assets may be held for different reasons by different RPs. Institute of Chartered Accountants in England and Wales It needs to be made clear that the principle of holding properties for their social benefit should apply to non-housing property assets where these are integral to the social housing service being provided, for example shops selected by the social housing provider (RP) to preserve neighbourhood amenities. Garages might also be classified as held for social benefit rather than for investment or other purpose, if the intended use is to assist residents of social housing property with their enjoyment of the property. Non-housing property that should not be treated as for social benefit includes office space used by the registered provider, even though it may benefit or reduce the cost of the social benefit provided by the registered provider of social housing (RP). Property such as student accommodation may be held either for its social benefit or as an investment, depending on the objective of the registered provider. We therefore recommend an additional sentence to the introductory paragraphs of section 14 to clarify that if a property is not held for social benefit, then the service potential provisions may not be applied in any measurement of impairment. In some cases, the asset would have been classified as an investment property, but not always (for example where it is office space used by the RP itself). livin Housing Ltd Whilst the overall reason an asset is held may be considered, several assets such as shops etc can be held for the economic benefit of the local community. This allows a provider to maximise rental income that actually supports the overall charitable objectives of an organisation. Therefore we believe that these should not necessarily be valued at Market Value Look Ahead Care and Support As noted in the previous consultation response it would be helpful for the SORP to clarify whether commercial property let at market rates but forming part of a development for social benefit (e.g. Doctors’ surgeries) could be classified as held for social benefit because of its purpose in context. In other respects the conclusion is sound because it provides consistency within the SORP and does not draw the definition of service potential so broadly as to be inconsistent with holding investment properties at valuation, which is widely accepted practice. Magna Housing Group The principle that assets should be held in the BS at a realistic realisable value should prevail. It is dangerous to overstate asset values in BSs, that’s the reason for the financial crash. The argument that social housing assets could be used for a different purpose to generate additional funds is not correct, because they would normally have grant or


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transfer covenants attached which mean that they cannot be used for other purposes. Those that truly can, say a HA bought a house on the open market and decided to let it at social rent, should be held at full OMV because that is what it could sell it for if is wanted (or had) to. This is basic accounting fundamentals that should have applied to the HA sector from the start. Using the augment that HAs must develop so we will bend the rules, should not be accepted by the FRC in my opinion. Lender are perfectly capably of assessing whether they want to lend or not, and if showing assets at a realisable value means that they don’t want to, that it probably the right decision to stop HAs overstretching themselves. Network Housing Group Ltd The sector classifies properties for a social purpose which is consistent with the SORP approach and therefore units have service potential. Radian Housing Value to business should be measured against intended use, wih criteria used to encompass the overarching purpose SAFFRON HOUSING TRUST LTD It makes sense if agree that Social Benefit = Service Potential Smith & Williamson This observation does not belong here but there is no natural place to put it. All of our responses are predicated on the assumption that the general principles set out in paragraph 164 of the 2010 SORP, which are very similar to those set out in paragraph 23.20 of FRS102, remain intact. If that paragraph is removed or changed substantively in the final SORP, then in many circumstances we do not believe RPs would be able to apply the guidance in the consultation draft on impairment within financial statements that gave a true and fair view. Sovereign Housing Association It is not wholly clear, but we believe that what is being proposed is that housing property classified as PPE is considered to be held for its service potential whereas anything classified as investment property is not. The Guinness Partnership Shops and other commercial property are sometimes included in a housing development as a planning or funding requirement for the whole scheme. Clarification would be useful if such assets, that are provided and held due to such external requirements for social benefit purposes, can be treated as PPE. If not, then there is a case that such investment assets, as part of the same cash generating unit as the housing properties, could also have service potential WM Housing Group This will help to maintain the integrity and consistency of financial reporting within the housing sector. Your Housing Group This should ensure consistency throughout the financial statements. This will require associations to document more on assets and their intended use, though this is considered to be achievable. We would want the ability to be able to reallocate assets if their intended purpose changes.


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Question 2: If the SORP permits social landlords to use VIUSP 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?

Comments:

Accent Group Ltd However, the suggested process will be subjective and judgement could vary widely between RP’s making comparability more difficult. More subjectivity may require Boards and auditors to seek more external advice in deriving VIUSP leading to increased costs. It might also allow boards to ignore the cash impact of development on organisations which stores up risk. This outcome however, is significantly more preferable to the previous SORP draft. Anonymous For RPs using the re-valuation method assets in one class should be valued using the same method. If VIU-SP is used the assets it is used for would need to be split out into a seperate calss. Transfers back would be possible if the impairment indicator disappeared Argyll Community Housing Association Limited What is deemed to be sufficient and appropriate additional disclosures Asra Housing Group Yes as long as the disclosure in the notes to the accounts is indeed detailed enough. Baker Tilly We consider that the basis of calculation, the principles adopted and the key assumptions and judgements should be disclosed to give the reader an appreciation of the basis of valuation. Berwickshire Housing Association

5%

5%

90%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

don't know

no

yes

Q2 (N=102)


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I can understand why some landlords favour this disclosure and with sufficient additional disclosure setting out the extent to which it has been applied - this should be ok. However it makes annual accounts increasingly complicated to understand and many funders would still focus on EUV-SH as a discounted cash flow value in any case, in my view. Bield Housing & Care I personally feel that the changes in accounting treatment over a number of years have made the reading of the acounts more difficult for users to understand with FRS102 making this worse. There is and will be no consistency across the sector whilst there is scope for interpretation within the accounting treatment. I apologise that this is a wider answer than what is specifically being asked. Bromford Group Appropriate for SORP to add that this should be disclosed as part of the accounting policy and which assets it has been applied to. CIPFA Having regard to the comments made above, CIPFA is minded to accept that this approach can be made to work. In many ways ViU-SP is not the most obvious approach – as the framing material for this question explains, there are many factors that indicate that the social housing sector is largely cash-flow driven. We agree with this view, and with the concomitant expectation that cash flow based methods would normally be the default approach for calculating ViU. Against this background the SORP Working Party has set out its view that social housing properties are held primarily for their service potential to the extent that this overrides the default valuation approach to assessing ViU. Having taken this view and moved away from the default accounting for rental generating assets, it is essential that financial reporting includes sufficient additional disclosure. Circle Housing The only issue will arise when an RP has to use RP to RP transaction as the basis of DRC when there is no active market. Council of Mortgage Lenders (Social Housing Panel) 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. Deloitte We agree the financial statements would provide sufficient, relevant and reliable information to the users if the use of VIU-SP was permitted as an alternative estimation technique, provided appropriate additional disclosures were made. Derby Homes Ltd Other approaches would be a threat to housing development potential Dexia .... this should be OK, but remains reliant on Management giving full disclosue of the basis on which this was done and that Auditors equally remain strong in enforcing a strong approach - they must not become complicit in allowing Management to water down their approach East Thames Group On the basis that nothing has really chnaged in terms of cash flows and objectives as a result of FRS 102, this seems appropriate. Eastlands Homes Partnership Limited Appropriate additional disclosures would be needed to aid the reader of the accounts. Gentoo Group


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New developments - How would we account for planet smart costs i.e. building homes that are above standard code but would address fuel poverty - would this element have to be impaired. Quality versus quantity - would we all have to build minimum standard at cheapest cost Great Places Housing Group Some users of financial statements will grasp this more easily than others Harrogate Families Housing Association But non-experts in the field may still have some difficulty understanding L&Q Housing Trust Depreciated Replacement Cost is a clear and measurable altermative fully understood by all users. livin Housing Ltd Using a VIU-SP method such as Depreciated replacement cost will eliminate fluctuations due to impairment under EUV-SH and result in more comparable and reliable information. Look Ahead Care and Support For RPs producing financial statements on a historical cost basis there is already a divergence between information in the accounts and the information required by lenders and the use of VIU-SP would not significantly change the quality of information provided to lenders through the statutory accounts. VIU-SP provides an appropriate estimation technique consistent with the principle of service potential adopted in the Accounting Standards Board interpretation of accounting principles for public benefit entities, and in this sense it provides more relevant information to other users of the accounts concerned with the social purpose of the RPs’ activities. Magna Housing Group No, becasue this method would over-value the assets. A user of the accounts wants to know that the value of assets in the balance sheet is no more than their true financial value. A BS is a financial statement, not a social statement. Also funding loss makeing schemes from profit making ones and therefore holding assets at an amount more than their market value, double counts the 'subsidy' over time. Becasue the assets are valued assuming this subsidy, yet the profits are reported each year through the I&E from the units that are suposed to be subsiding the loss making ones. Assets should be held at the lower of cost and a fair realisable market value. MidWales Housing Association This depends on the details published in the notes to the financial statements. The financial statements will need to include a broad explanation of how the VIU-SP has been calculated, to make the impairment review and any calculation meaningful Network Housing Group Ltd yes, provided additional disclosures are made in the accounts. One Housing Group I agree, however the SORP Working Party needs to ensure that there is consistency in the method used to calculate the VIU-SP within the sector. Origin Housing Limited We believe that where an impairment provision would have been required had a Value In Use (VIU) methodology been used but no provision has been raised because a VIU-SP methodology has been used the amount of the impairment that would have been charged under the VIU basis should be disclosed. We believe that in these circumstances it is important that users of the accounts are informed of the value attributed to assets that is not supported by future cash flows. Radian Housing


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VIU-SP is probably not a measure that lenders would recognise for security purposes, but is more a justification for the business development SAFFRON HOUSING TRUST LTD Provided the disclosures were clear Sentinel Housing Association Limited Will depend heavily on what additional disclosur eis required. Spectrum Housing Group As long as there is a consistent approach and there is the adequate disclosure to go alongside it. The Hyde Group It would be useful to have a practice note to encourage consistency across the sector Trafford Housing Trust Will the VIU-SP require a formal review involving a qualified valuer or can this exercise be undertaken in house? Wheatley Housing Group It would allow the status quo to be maintained, and this should not cause undue problems for most users of financial statements, because (as is noted above), most request their own property valuation information anyway. However, whether it is what most users would most value is a different question, and one best addressed by those users.


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Question 3: Would the use of a purely cash flow based estimate (ie value in use) in determining the recoverable amount of social housing properties provide more relevant and

reliable information for users?

Comments:

Accent Group Ltd It would also improve comparability and reduce subjectivity. Adactus Housing Group Limited Clarity is required about social landlord/housing associations investing its own free cash (surpluses) into social housing properties such that the net investment is compared to the future cashflows under the value in use method Affinity Sutton As a sector we do not hold our assets solely for their cash generation, for example: i) the reason we are able to raise money at economic levels, and therefore can develop additional social housing, is by using our existing assets as collateral; ii) we do not look to maximise rents that we charge (for example we have capped rents for some homes at 65% rather than the 80% we are entitled to use); and iii) we spend large sums on major works which if we were looking to maximise net revenue we wouldn’t (some of this is to meet the Decent Homes Standard which is not required in the commercial sector). A purely cash flow based estimate would be very misleading and is not relevant nor reliable. Anonymous Would like these done over the full life life of the asset rather than the developement appraisal length Arhag Houssing Association From the RSL perspective ..............reliable (yes), but more relevant (no). Asra Housing Group For the reasons given in paragraph 1.2 i.e properties held for their social benefit are not held solely for the cash flows they generate and are held for their service potential. For a traditional RP with housing stock it has held for a long time

9%

65%

26%

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don't know

no

yes

Q3 (N=103)


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i.e. held at low cost, we do not foresee any problems. However there could be examples, probably with a newer RP, where all the stock is impaired giving a cumulative aggregate total negative cashflow. It is for this reason that we think the aggregate cumulative £ should be disclosed where VIU-SP has been applied (Q10.) not just words (para 14.42). Baker Tilly We also agree that social housing properties are not purely held to generate cashflows and that they are also held for their service potential. Berwickshire Housing Association My perception is that our Board seems to increasingly focus on cash flow and paying less attention to I & E. Ultimately social landlords are cash flow businesses in my view. Bield Housing & Care If you are are charity and do provide social benefit rather than a desire to make profit, cash flow is the only element of the accounts that has remained consistent and understandable whilst other accounting changes have taken place. In my experience, the most recent accounting changes have seen surpluses rise (artifically) significantly. Chiene + Tait Full disclosure of the method of calculation should allow the user to understand the measure of any impairment adjustment. CHS Group The benefit provided by the provision of social housing is one that is not based on casdhflows it is one based on the saving across a number of different organisations based on SROI methodology. CIPFA As noted in our response to Question 4, having regard to the points made by the SORP working party CIPFA is content with an approach which allows valuation based on Service Potential.It might be possible to develop a cash flow based approach having regard to existing FRS 102 material on concessionary loans, valuing properties (rather than loan assets) based on a commercial rate of return then recognising a credit the balance sheet with a deferred subsidy to represent the value of the return foregone in exploiting the asset at below market rate over its economic life. Circle Housing It is useful value to disclose but not on B/S Coastal Housing Group Should have choice of Method of which Cash Flow could be one Coastline Housing Ltd As per our response to the previous SORP consultation this approach could result in unacceptable impairment to assets in the sector. Council of Mortgage Lenders (Social Housing Panel) 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. Deloitte We believe the use of a purely cash flow based estimate, in determining the recoverable amount of social housing properties, may lead to unnecessary impairments as it may not reflect that these are held for their service potential. Derby Homes Ltd Such an approach would not recognise service value/social purpose nor the latent value on disposal of property


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Dexia ... but only on the basis that stakeholders have confidence in the values being used. East Thames Group This isn't why we invest in social housing properties so it doesn't to me make sense to use it. Eastlands Homes Partnership Limited This would not provide more relevant / reliable information - Social Housing is not solely cash-flow driven EMH Group Ltd Cash flow based estimates are not reflective of the price another social housing provider would be prepared to pay to acquire the asset First Wessex Whilst easier to calculate, this doesnt reflect the full value in use to Housing Associations of that asset Gateway Housing Association We are in business but with a social purpose and are not driven by pure cashflows. Value in use should include social potential Grant Thornton No. Measuring value in use purely using a cash flow based estimate for assets held for their service potential does not take into account the full economic value of the asset to that entity which is an integral part of a housing association's business model. Gentoo Group Impact on the level on which cash-generating units are determined. Currently have a low level of new build properties which within the pool of assets revalued has minimal impact and to date nil impact on p and l. However if we were to do a large scheme in one of our areas this could have a detrimental effect on new build subsidy and subsequent impairment assessment upon revaluation based on cash flows GREENSQUARE GROUP LTD However, the existing EUV-SH definition is already a cashflow based estimate so where does this leave those organisations using EUV-SH as the carrying value of Housing properties. There is a danger of severe inconsistency between those using historic cost and those at valuation. Harrogate Families Housing Association May be appropriate to use both Isos Housing Limited We would not want to be restricted to either VIU or VIU-SP. There is little benefit in choosing between them. Jones Lang LaSalle A purely cashflow based approach would run the risk of materially undervaluing the asset, by overlooking either the perpetual nature of income generation from social housing assets (assuming sufficient investment over time); and/or the prospect of realising a higher capital value in the transactional market between RPs for tenanted housing properties. It is also likely to be the case, in my experience, that RPs assessing cashflows internally do not adopt market-facing assumptions, and therefore again undervalue their assets. livin Housing Ltd It would purely look at the Cash flows generated and not the service potential of an asset. Longhurst Group Ltd


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The main users of the accounts that this would be useful for would already have information on the value of stock (based on cashflow) through loan security re-valuation reports. It should also be remembered that the full definition of EUV-SH is not limited to a cashflow based model. Look Ahead Care and Support for the reasons outlined above. Users of the financial statements comprise a number of different groups including lenders, customers, commissioners, regulators, staff and the general public. Lenders already require valuations over and above the historical cost information presented in many RPs’ accounts and government and regulators are able to draw on relevant detail through regulatory returns to assess solvency using forecast cash flows. The remaining users are likely to be interested in the service potential for public benefit represented by the RP’s assets and therefore, in line with the ASB interpretation, it is appropriate that the potential for public benefit is reflected in the value in use calculation. Magna Housing Group Yes, becasue users would be able to see the true fiancial position of a HA - which is the point of a BS. MidWales Housing Association The EUV –SH only takes into account the net income flows. This ignores any value associated with the land on which the property is constructed. MVT would have been a more appropriate cashflow valuation as it does take into account sales of empty properties and therefore, includes an element of land value in the valuation. Moat Homes Limited This would impact on our social purpose objective. Network Housing Group Ltd No, because a cash flow basis, VIU methodology, under states the value and a VIU -SP method more accurately reflects value. Notting Hill Housing Trust As stated in 14.18, this calculation should be applied prior to VIP-SP One Housing Group If a purely cash flow estimate is used to determine the recoverable amount of social housing properties it will be easier to understand. However the cash flow method will not reflect the service potential of the housing properties as it does not take into consideration future cash flows from future restructuring for which there is currently no commitment, enhancement or improving properties in the future or cash flows from financing activities or income tax. Origin Housing Limited We believe that VIU estimate would be more reliable than a VIU-SP however we recognise that such a methodology fails to recognise the under lying social purpose of the sector and thus provided adequate disclosure is made we believe that VIU-SP is an appropriate estimation basis. Paradigm Housing Association Ltd The SORP should follow FRS102 in providing an alternative model eg estimating fair value less costs to sell as there may be circumstances where this could be more appropriate (relevant). This is particulaly important as the types of property /scheme developed change. Restricting the option to a purely cash flow based estimate could prove short sighted in a rapidly changing environment, Radian Housing It may be more relevant for investors to ensure sufficient security SAFFRON HOUSING TRUST LTD It would be more transparent


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Selwood Housing This would fail to tak into account the social benefit of the asset which is central to its value to the owning housing association and its stakeholders Sentinel Housing Association Limited Better basis for understanding long termstability of the business. More objective Southern Housing Group Pure VIU whilst recognising the cash impact of an asset on an organisation, does not reflect the uplift over and above the simple cash flow that is generated by the unit, and is recognised when trading takes place in social assets Spectrum Housing Group Due to the lack of flexibility Thames Valley Housing The use of a pure cash flow based estimate does not represent the intended use of a social property and inherent value of that use The Guinness Partnership Agree with the general approach that VIU-SP and fair value may be more appropriate The Hyde Group Yes, but we need to ensure we take into account service potential and other factors. Town & Country Housing Group We would favour flexibility to allow us to match the approach to the circumstances. Unity Housing Association Ltd does not appear to allow for the reasoning behind the social landlord's raison d'aitre Wheatley Housing Group It is difficult to argue with the statement above; we expect that users would most value EUV-SH as a consistent basis across the sector, but with disclosure of the hybrid MV-ST / EUV-SH valuation as well where MV-ST can be applied to certain properties (similar to the basis of many loan security valuations). We are not aware of many users who consider the cost basis to be particularly relevant or reliable. WM Housing Group We consider that VIU-SP more realistically reflects the intentions of the RP and presents a clearer picture to the users of the financial statements. The use of a pure cashflow based estimate may be well suited to a for-profit organisation whose aims are the generation of profits to fund dividends, but is likely to present a misleading picture for the majority of Registered Providers whose social aims and intentions are very different. Your Housing Group It is not considered that this would reflect the nature of the sectors’ activities.


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Question 4: Do you agree that depreciated replacement cost provides an appropriate measurement basis for assets held for their service potential?

Comments:

Accent Group Ltd We welcome the flexibility, but please note our response to question 4 above. Argyll Community Housing Association Limited This may increase the cost burden for RSLs in producing DRC valuations Asra Housing Group The ease of which a measurement basis can be used to obtain the value in use is important to us. Bield Housing & Care If the capital grant is no longer being netted off against the cost. Bracknell Forest Homes I really think this needs to be prescriptive rather than allowing discretion for preparers of accounts. I am concerned at the loss of credibility for investors if we move away from the clear measurement of cash returns. Bromford Group Associations should be able to use other methods if they are more appropriate. CHS Group The mechanism suggested does not equate to measure of calculating benefit it appears to be a suggested replacement. CIPFA Having regard to the comments made above and in the framing material for Question 4, CIPFA is minded to accept that this approach can be made to work. As noted in our response to Question 4, DRC is by no means the obvious default

2%

4%

94%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

don't know

no

yes

Q4 (N=99)


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approach for calculating ViU. We would also note that this approach is not the one being used for social housing assets under the Code of Practice on Local Authority Accounting in the United Kingdom. Circle Housing Yes but this is unlikely to be lower than Fair Value as measured by an RP to RP transaction so doesn't address the underlying concern of potentially under valuing assets. Clyde Valley Housing Association My only concern on the use of the word "depreciated " is that due to its meaning in this context almost being the adjustment for any "betterment" included in the new replacement cost before comparison may lead to confusion. Council of Mortgage Lenders (Social Housing Panel) For the sake of consistency and comparability, stakeholders should require that a single approach be used, with alternatives employed only in exceptional justified circumstances. Deloitte We agree that depreciated replacement cost, as defined in FRS 102, is an appropriate measure of assets held for their service potential. However, we would welcome more guidance in the SORP as to how this should be calculated in respect of social housing properties, perhaps by way of example. Dexia A single apporach should be only used, which exceptions properly and fully explored in the notes. Eastlands Homes Partnership Limited It is an option but unsure if it is the most appropriate basis First Wessex Gives a fair approximation of the cost of bringing into use a comparable asset to deliver the same service benefit Gentoo Group Quality versus quantity and address other strategic objectives e.g. pv on roof to address fuel poverty Grant Thornton This is an appropriate method for measuring service potential. We acknowledge that there may be alternative methods, however, these are unlikely to be more relevant and reliable other than in rare circumstances. Gwalia It will be extremely costly and difficult to ascertain Home Group Limited We believe that the use of Depreciated Replacement Cost to measure Value in Use (Service Potential) will ensure consistency of treatment across RPs which is welcomed. We note that the guidance as drafted (in section 14.28) allows other valuation bases to be used provided they are relevant. We believe this to be consistent with paragraphs 27.20A of FRS 102. In order to encourage consistency, we would therefore suggest that where a RP elects to use an alternative method of assessing value in use from depreciated replacement cost that the nature of the alternative method and the rationale for using the method are fully disclosed. Institute of Chartered Accountants in England and Wales We consider that DRC should be the method used to assess VIU-SP in order to achieve consistency across the sector. Paragraph 14.28 allows the use of alternative models but in order to achieve consistency between RPs, we recommend that it be made clearer that the circumstances where DRC does not provide the best basis for a true and fair view are likely to be rare. In such circumstances, the departure from SORP should be justified and the basis of measurement explained in the notes to the accounts.


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Jones Lang LaSalle Based on experience, I consider that only very rarely will circumstances arise where cashflow would not be an appropriate means to assess the value of social housing assets held for their service potential - ie, EUV-SH, whether that be assessed assuming a perpetual cashflow or a more finite cashflow with the addition of a terminal or residual value at the end of the explicit term of years. livin Housing Ltd Will assist with development aspirations. Longhurst Group Ltd Yes, in the absence of any other market based information DRC would be an appropriate basis to assess the service potential. Magna Housing Group Because I think that assets should be held at a realistic sales value. MidWales Housing Association Depreciated Replacement Cost (DRC) can provide an appropriate measure of service potential. However, I consider DRC is most appropriate for any specialist accommodation; supported of ExtraCare accommodation. However, a blanket acceptance of DRC could mean any property regardless of its cost could be argued as not being impaired! I therefore, consider that an overall limit on ‘service potential’ should be considered as the equivalent open Market Value (OMV). Take for example, the building of a property for rent. If the OMV of a property was £150,000, but the actual cost to the Association is £175,000, the Association could argue the DRC is £175,000, whereas I would consider the £150,000 is the measure of service potential; the alternative use of the property. In this example I would consider the impairment to be £25,000. Network Housing Group Ltd DRC should be allowable, in particular in relation to supported housing where a market value for instance would understate value in use. Origin Housing Limited Subject to there being adequate disclosure. RCT Homes If we have an alternative to cash driven valuations I think it is then important to limit the options of what these are Wheatley Housing Group Provided this statement merely relates to an impairment test. Your Housing Group It is considered that this method would allow a basis to assess costs by considering what it would cost to replace the asset.

Question 4a: If not, what alternative measures would be more appropriate? Argyll Community Housing Association Limited None CHS Group A proper SROI methodology needs to be evaluated and become a standard so that financial statements can avoild some possible inconsistencies.


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Deloitte We believe that other methods, such as fair value less costs to sell, might also be appropriate methods of determining the value of the assets held for service potential, but we agree with the SORP recommending only one method to encourage consistent treatment within the industry. Eastlands Homes Partnership Limited Would need more detail of possible alternative measures that could be more appropriate and acceptable Gentoo Group What is the benefit of splitting up the cash-generating units? We can only see the downside of doing this. Will also be an administrative burden for no gain Home Group Limited As noted in our response to question 6, we support the use of depreciated replacement cost but where an alternative is used, this should be fully disclosed. Magna Housing Group A method which gives a fair market value of the assets


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Question 5: Is there sufficient guidance in paragraphs 14.25 and 14.26 to explain the calculation of depreciated replacement cost?

Comments: Argyll Community Housing Association Limited A worked example would be helpful Beever and Struthers Depreciated Replacement Cost is described (in summary) as the lowest cost of constructing or acquiring a replacement asset to provide the same level of service potential. The cost of construction would be relatively straight forward to obtain in practice, but the cost of acquisition is less so. A replacement asset could be acquired from another registered provider, or on the open market, the costs of which are likely to be very different. Our view is that in most cases, the only realistic available option to replace service potential would be an open market purchase, but that each case would need to be considered independently. Further guidance in this area would be helpful. Bield Housing & Care Some worked examples would be more useful Circle Housing 14.27 expressly restricts using depreciation charged to the I&E but it is unclear what the alternative is. This could be usefully clarified. Clyde Valley Housing Association My only concern is that the land issue in the first part may confuse. Coastline Housing Ltd The guidance is not clear on what is meant by ‘optimal’ conditions. For example, it would be expected that if in constructing the original asset there were additional costs incurred through poor project management, that this would not be reflected in the DRC. However, if there were abnormal costs associated with the site itself that could not be

10%

32%

58%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

don't know

no

yes

Q5 (N=99)


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avoided, for example a need for under-pinning, then these should be reflected. In addition the guidance says that either lowest cost of construction or acquiring a replacement can be used. The definition is not clear as to whether this means that the lower of the two options should be used, or if there is a choice between the cost of constructing a replacement or acquiring a replacement. Acquiring a replacement could be interpreted to mean acquiring a similar asset from another RP. In this case the cost would be linked to EUV-SH, potentially at a premium of around 30%, which is likely to be lower than the cost of construction. Therefore if the definition means ‘the lower of’ RPs are effectively being asked to use EUV-SH as a benchmark, which takes us back to the problems in the previous draft of the SORP. Council of Mortgage Lenders (Social Housing Panel) 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. Deloitte See answer to question 6 above and question 9 below. It would also be useful to determine what depreciated replacement cost is in the context of registered providers of social housing and what needs to be taken into account. Dexia At this stage, it appears OK and conostsent with the FRS102 approach. Howveer, this could be an area that would require a revisit in light of actual approaches used in published accounts Eastlands Homes Partnership Limited See 9 below - worked examples would greatly help Gateway Housing Association A worked example is always useful Gentoo Group Subjective on the quality aspect of the cost. Could do with worked examples Grant Thornton The explanation in 14.25-26 explains the calculation of the replacement cost, but is silent on how and why this should be depreciated. The depreciation element ensures that the valuation reflects the asset in its current condition. If the asset is ten years old, the DRC valuation should reflect ten years' worth of use on the new replacement asset. FRS 102 and paragraph 14.28 of the SORP also suggests that alternative models of measuring VIU-SP may be used to estimate VIU-SP provided they are relevant and can be reliably measured. We would suggest that paragraph 14.28 is reworded to follow FRS 102.27.20A which says 'other approaches may be used where appropriate', which we take to mean where it will produce a reliable measurement of value in use for service potential, not that the method itself can be reliably measured as it is currently phrased in the SORP.

Hanover (Scotland) Housing Association a worked example wouls also prove useful Home Group Limited In deriving depreciated replacement cost, an RP should consider three bases: - Construction of a new, equivalent property - Purchase of an equivalent property on the open market - Purchase of an equivalent property from another RP who is a willing seller Whilst we are confident that a robust , evidence based assessment could be made in the majority of cases for the first two bases, we do not believe that the third bases can be reliably assessed as it is based on the premise that there is another RP operating in the same area with equivalent properties that it is willing to sell. Whilst a number of sales have taken place between RPs, this occurs on a case by case basis and is by no means the norm. Therefore in the majority of cases , the third basis cannot be reliably assessed and as a result we do not feel it should form part of the assessment of depreciated replacement. We note that the guidance stresses that depreciated replacement cost should include an assessment of the lowest cost of replacement of a property. Whilst we agree with this sentiment, we feel it should be stressed that the assessment may allow for the inclusion of the cost of providing


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enhancements which benefit the tenants (e.g. energy efficient measures) where these exist in the original asset. We would however agree that the assessment should not be unreasonably inflated by including unnecessary costs which do not in themselves deliver service potential. Institute of Chartered Accountants in England and Wales We consider that the proposed guidance may not work well in practice. There are three possible bases for calculating DRC: 1) construction of a new property with the same service potential as the original asset 2) purchase of an equivalent property from another registered provider 3) purchase of an equivalent property on the open market, possibly with part of the cost being met (reduced) by social housing grant. However, we do not consider that DRC should include the second of the three unless there is a reasonably likely prospect that the RP would be in a position to purchase equivalent units of a similar nature from other RPs. This would therefore require there to be an active market at the year end, rather than just a theoretical option of purchasing a property that was not actually being offered for sale. We also note that DRC based on estimated construction costs (1) and equivalent market price (3) can be appraised objectively, whereas there is no objective basis for testing the cost of a purchase of an equivalent property from another RP in the absence of an active market (2). We do not agree that the cost of replacing the land should be included in the DRC calculation under the first basis above, because the RP already owns the land. In this situation, DRC should be estimated using the existing carrying value of the land on which the new property is being theoretically constructed combined with the cost of constructing the property. The only circumstances in which current land costs would have to be taken into account when assessing DRC from the perspective of construction of a new property on an existing site would be where money needed to be spent on the land itself, for example if it were contaminated or subject to some other defect. DRC should be the cost of constructing or acquiring an asset to provide the same level of service potential. Thus, if a property had some features that were of benefit to the tenant (e.g. energy efficiency measures) then it would be appropriate to capture this in assessing DRC. On the other hand, DRC should not be inflated by unnecessary costs. Where technological advances mean that the specification for a property can be met at a lower cost than that of the original, this should be reflected in the assessment of DRC. Paragraph 14.27 states that depreciation in the context of DRC is “not the same as the depreciation charged.” This paragraph should make more explicit that depreciation in the context of DRC applies the same principles as depreciation used for financial reporting purposes, but should not be assumed to be the same amount given that the costs may be different. In other respects, it is the same. Isos Housing Limited 14.25 and 14.26 gives sufficient guidance; however in our opinion 14.27 contradicts the above paragraphs and further explanation is required. Jones Lang LaSalle In my experience, the sector is not familiar with the concept of DRC either in theory or in practice. This is probably because its only application is in the calculation of target rents for certain types of unusual or specially designed supported housing properties. When it is used in that context, the approach is necessarily formulaic and inflexible, and simplified in important respects. Where DRC is used elsewhere in more conventional situations - ie, the valuation of specialist real estate for which there is no market evidence of actual, transactional values - a greater degree of judgement is called for, as well as expert determination of appropriate assumptions. Given some of the debate that took place earlier this year at the NHF road shows on the first consultation exercise, it would be helpful to provide further guidance to avoid confusion and possible abuses of the option to resort to DRC. It also seems to me that there is a narrative link missing between paragraphs 14.24 and the following two paragraphs relating to DRC. Look Ahead Care and Support 14.25 could explain how unamortized grant is to be treated when calculating DRC as at present the NPV of cash flows method is net of grant repayment whereas grant is not addressed in the DRC definition and appears to be excluded. This could be made explicit. MidWales Housing Association While the guidance is clear not may not clear enough! If, in the course of the development of a site, a unforeseen land condition is identified; rock or contamination, that requires additional costs, would these costs be eligible as part of the


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economic costs or not. If the answer is yes, they can be included; it may be possible to argue that almost any additional cost is a permissible cost, whereas if the property was being built for sale, there would be impairment! Origin Housing Limited The wording is sparse but as the calculation of a depreciated replacement cost is inevitably going to result in a significant subjective and technical judgements being made we don't believe a worked example would provide greater clarity. Radian Housing some is quite subjective and open to interpretation, but will always be so. RCT Homes Yes, the concept is simple - but quite subjective as to how to arrive at a figure Smith & Williamson 1 The word"material" in various places needs further explanation perhaps via illustrating with some examples. 2 The explanation of depreciation is confusing; it should be the basis as "normal" depreciation, just based on the calculated replacement cost. 3 The cost used for land should be the current carrying value of land in the RP's accounts, not the market value of land, in the situation where the estimated is derived from an asset being constructed on the existing site. 4 It is unclear at what point a "plan" to regenerate a site leads to an indication of impairment. The example refers to it being "probable", but this word is not used in the main text. 5 As things stand, the method proposed would never produce a higher balance that fair value less costs to sell, since DRC is proposed to be the lowest of three items, one of which is in effect fair value less costs to sell, less depreciation. Spectrum Housing Group It is too brief The Hyde Group It is not clear how you would arrive at this information and what would be accepted by auditors. We would need to look at average data which may be hard to ascertain and could be subject to manipulation. Your Housing Group We are satisfied with the definition provided.

Question 5a: If not, would the inclusion of worked examples be of assistance in applying this guidance?

32 organisations agreed that the inclusion of worked examples would be of assistance in applying this guidance.

Additional comments:

Accent Group Ltd Worked examples always help preparers of accounts and we would welcome them. Anonymous Worked examples would be of help, need to be for RPs who hold properties at valuation as well as those who hold at cost. Berwickshire Housing Association Despite answer above - worked examples are always useful.


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Chiene + Tait Although we consider the narrative is sufficient, we consider that worked examples would enhance understanding if there should be any dubiety. City West Housing Trust Yes, additional guidance would be helpful. Coastline Housing Ltd Worked examples are not necessary providing the wording is clear and unambiguous. Deloitte Although we agree the guidance is sufficient, we believe a worked example would be helpful in applying the guidance. Eastlands Homes Partnership Limited Yes, worked examples would greatly help to apply the guidance to our own circumstances. First Wessex Overall the guidance is sufficient to be able to make an assessment however a worked example would definitely aid the understanding as part of implementation Grant Thornton Yes. This is something that the sector would find useful. GREENSQUARE GROUP LTD Yes worked examples would be very helpful and provide further clarity and guidance. Habinteg Housing Association Ulster Ltd Yes worked examples would be benefitial Harrogate Families Housing Association More worked examples would help. Home Group Limited Yes, we believe that the guidance could be significantly enhanced by the inclusion of examples including figures which illustrate practical examples of application of the guidance. Institute of Chartered Accountants in England and Wales Yes. The practical points raised in answer to Question 8 show the need for examples with numbers to articulate the underlying principles. Jones Lang LaSalle Yes, I believe this is vital, for the reasons given above. Orbit Group Yes, it would be useful to include example(s) of impairment with the application of VIU-SP i.e. depreciated replacement cost and how calculated. Paradigm Housing Association Ltd No Radian Housing Yes, some people learn better when given worked examples


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Shropshire Rural Housing Association Worked examples are always a useful refence tool. Smith & Williamson Yes. There would be benefits from a considerable number of further examples given the level of judgement and interpretation being required. Spectrum Housing Group Yes with an emphasis on depreciation calculations referred to in 14.27 Thames Valley Housing Worked examples would aid users but the guidance is sufficient WM Housing Group Whilst the guidance in paragraphs 14.25 and 14.26 is clear, worked examples would serve to highlight the potential issues to consider in respect of replacement of the land, and would be beneficial. Your Housing Group Whilst we are satisfied with the definition, it is expected that over time custom and practice will develop. It would be useful to give a worked example to assist preparers of financial statements and avoid any potential confusion.


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Question 6: Are the disclosure requirements of paragraph 14.42 sufficient? If not, what further disclosures are required?

Comments:

Argyll Community Housing Association Limited Should the disclosure be a disclosure for whatever method is used whether it be VIU-SP or DRC but DRC is not covered in the disclosure obligations Asra Housing Group Disclosures should include the total amount VIU-SP was applied to. i.e. of £500m cost of assets if impairment indicators are identified on £10m, this £10m is then assessed for VIU-SP. This is different to say £400m showing impairment indicators! Beever and Struthers However, there are other examples where clarity over disclosure requirements would be helpful. Para 14.33 could be expanded to state whether such disclosure is required as a separate line in a note or on the face of the SOCI. Berwickshire Housing Association I think that it would be useful for all social landlords to report EUV-SH but understand that there are regular costs incurred in doing so and that there is unlikely to be a lot of support for this. Bromford Group This should be included as part of the accounting policies note CIPFA Yes. As far as we can tell.

Circle Housing Yes, whilst a more proscriptive approach would offer more comparability, this benefit would be offset by the commercial sensitivity of the data, for example discount rates.

8%

10%

82%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

don't know

no

yes

Q6 (N=100)


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Coastline Housing Ltd It would be useful to make clear whether what is required is a general note in the accounting policies disclosure that sets out the approach taken, or a specific note related to the assets where impairment has been considered. If it is intended to be a specific note detailing specific consideration of impairment of individual assets or groups of assets this should be made clear. Council of Mortgage Lenders (Social Housing Panel) 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. Deloitte We have considered the disclosure requirements of paragraph 14.42 and have not identified any further disclosures that would be required in the financial statements. Dexia As with Q8 Eastlands Homes Partnership Limited The disclosure requirements set out in 14.42 are what a reader of the accounts would expect to see Gentoo Group Guidance on key assumptions would be useful as we will all do this differently Harrogate Families Housing Association Difficult to answer until we have tried. Helena Partnerships Ltd If VIU-SP is used a cash flow valuation should also be disclosed Isos Housing Limited There are possibly too many requirements, in particular, including VIU-SP may cause confusion. Origin Housing Limited See response to Question 11. Smith & Williamson A reference to impairment might often be included in the disclosures required by both paragraphs 8.6 and 8.7 of FRS102. It would be helpful for the SORP to provide some further guidance on the content of such disclosures. Sovereign Housing Association a. It would seem appropriate to disclose which schemes/properties have been considered for impairment, what the impairment triggers were and which schemes/properties have been written down as a result of the reviews. b. Does the disclosure suggested in 14.42 really give any useful information to the reader of accounts? We are unconvinced. Your Housing Group We are satisfied with the minimum disclosure requirements.


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Question 7: Should a social landlord be required to disclose the value in use of a cash generating unit if it chooses to use the VIUSP estimation technique in performing an

impairment assessment?

Comments:

Accent Group Ltd We are unclear how this would aid the users understanding of the accounts. More a matter for the Board and Auditors. Affinity Sutton Being required to show the value in use (ie a purely cash flow based estimate) is unhelpful and completely misses the point that VIU-SP is an appropriate measure. Either there is an impairment or there isn’t. You could use the same logic for all accounting policy decisions, for example, what’s the impact of depreciating units of a shorter time scale or what’s the impact of using valuation accounting rather than cost? Being required to show in the accounts the impact of using a different valuation method is frankly ridiculous. Argyll Community Housing Association Limited Disclosure at the level of a cash generating unit is at too low a level. Disclosure of the technique should be sufficient. Arhag Houssing Association to comply with the SORP Baker Tilly Providing the basis of valuation is appropriate, in accordance with the SORP/FRS 102 and accepted by the auditors, then providing a disclosure of an alternative valuation is not necessary. Bield Housing & Care This creates yet more work for little or no benefit. the question again would be who determines the EUV, internal or external valuation of which both are open to interpretation and potentially significant additional costs to a charity.

8%

70%

22%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

don't know

no

yes

Q7 (N=100)


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Chiene + Tait We do not think that level of detail is helpful to the reader, and may be confusing to the reader and commercially sensitive to the RSL. Coastline Housing Ltd Providing sufficient disclosure is giving regarding accounting policies, it would seem unusual to have to disclose the ‘workings’ that have resulted in a decision not to impair an asset. Council of Mortgage Lenders (Social Housing Panel) 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. Deloitte We believe social landlords should not 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. In providing this disclosure, entities would have to perform additional calculations and the cost of this process would not outweigh the benefits achieved. Derby Homes Ltd Such a disclosure would not add value to the understanding of the accounts Eastlands Homes Partnership Limited If they don't disclose detail at this level, how can the reader properly judge the assessment? Resulting level of detail and disclosure / resultant length of accounts could be an issue. EMH Group Ltd Providing to much detail on the estimation technique used will lead to further confusion for the readers of the accounts. First Wessex the requirment in 14.42 should be sufficient disclosure to enable understanding. Gateway Housing Association I think the Financial Statements should set out the principles. If individual values are disclosed this could be a long list depending on the number of cash generating units and possibly commercially sensitive Grant Thornton This disclosure is not a requirement under FRS 102 and, as such, we do not believe it should be required by the SORP as it does not provide easily understood, transparent information that will enhance the reader's understanding of the financial statements. Halton Housing Trust This should be open to the Landlord as an option Institute of Chartered Accountants in England and Wales Further disclosures should not be necessary if the accounts provide sufficient, clear information about the measurement method and assumptions used. Isos Housing Limited If VIU-SP is the measure of valuation then, in our opinion, there is no need to disclose the value in use. livin Housing Ltd Not required under FRS 102 and would potentially confuse readers of accounts.


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Longhurst Group Ltd This would be too confusing for the users of the accounts. EUV-SH is more than just a cashflow based valuation. The users of the accounts who will be interested in a cashflow based valuation already receive that information through loan security reports. Requiring this information to be published in the accounts could increase costs for very little benefit. Look Ahead Care and Support The draft SORP notes that in 14.18 as a practical expedient a social landlord may estimate VIU based on future cash flows if the result gives no impairment loss. In this case there would be no VIU-SP estimated. In other cases VIU-SP may be a simpler calculation or may have been estimated for other purposes. In addition the option is open to RPs to use a technique similar but not identical to VIU-SP which would then not fall under this disclosure. Because the estimation technique for value in use is not prescribed by the SORP, disclosing VIU calculated solely using the VIU-SP method does not provide meaningful information to users of the accounts. Magna Housing Group Yes, why not. What is it trying to hide? Network Housing Group Ltd If the social landlord uses VIU-SP as the valuation basis then that basis stands in its won right and requires no further comparator , as long as appropriate disclosures are made. If one was to include a comparator, such as VIU, this would only confuse the reader of the accounts, disclosing a method that was not used for accounting policy. One Housing Group Disclosure would enable users to better understand the sector accounts. This disclosure would only be relevant/useful if the method used to calculate the VIU-SP is consistent through out the sector. Orbit Group This has the potential to be confusing to a reader of the accounts by including alternative valuations for the same asset(s) Origin Housing Limited In our view the social landlord should disclose what the impairment charge would have been had a value in use methodology been used rather than a VIU-SP methodology rather than disclosing the value in use. Paradigm Housing Association Ltd In my view this would be too much detail for inclusion in statutory accounts . Key issue for reader is: has there been impairment ? Detail of calculation not necessary to meet this requirement. Plymouth Community Homes unnecessary to do 2 lengthy calculations with no additional benefit Radian Housing Disclosure of impairment basis would be appropriate. RCT Homes Having used VIU-SP it would then undermine its validity by quoting the cash based valuation. this should be between the SL and its funder Sentinel Housing Association Limited Draws attention to the weakness in yhe process,creates more work and allows reader to make own judgement. However from a purely technical accounting view probably should be "yes" Spectrum Housing Group


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It would probably be useful from an auditors perspective and depending on the level of materiality then additional disclosure may be required The Guinness Partnership ‘Extent of use’ is considered sufficient. Funders have their own valuation requirements for secured assets. The Hyde Group This question is unclear. Are we asking if we should disclose the value in use of each asset impaired? We don't think this is necessary if the methodology for calculating VIU-SP has been made clear. Town & Country Housing Group This would be too much detail to include in the financial statements, especially were events to result in a large number of impairments being required. Surely the users of the statements could rely upon the auditors to have considered the detail as part of their work, in the same way that they rely on other aspects of the auditor's work. Trafford Housing Trust There is still additional clarity required in respect of how the definition of a 'cash generating unit' is to be applied. The initial guidance suggests that this would be on a scheme-by-scheme basis. However, we would welcome further guidance as to whether there is further scope to expand / interpret this? Triangle Housing Association Ltd Probably Unity Housing Association Ltd Too much information at scheme level would probably not be very useful Wheatley Housing Group As noted before, this is likely to be more relevant information for most users of financial statements than the carrying cost or DRC. It would also allow more transparent and like-for-like comparisons across the sector - currently very difficult with the "apples and pears" approach of valuation vs cost. WM Housing Group We do not consider that disclosing the value in use of a cash generating unit will add to the understanding for the user of the accounts. Your Housing Group We would expect that associations may choose to provide additional disclosures on this to ensure that readers of financial statements understand the basis of preparation. However, we would suggest that this should be at the association’s discretion.


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Question 8: Is the redrafted impairment section sufficiently clear that an impairment assessment is only required where there is an indicator of impairment?

Comments:

Accent Group Ltd We consider there is a fundamental difference between impairment (i.e. where an event reduces the value of an asset) and the difference between a development’s actual cost and the anticipated cash rental stream. The latter is known / can be estimated at the start of a project. The former is an unknown event. Bield Housing & Care Although is an internal planned subsidy and indicator of imapirment ! Bromford Group Any material detrimental impact of government policy will be different for each association; materiality is different for each association Deloitte We believe the redrafted impairment section is sufficiently clear but we request the SORP working party clarify whether the “approved plans”, as disclosed in the question, includes internals subsidies or not. If internal subsidies are included within “approved plans”, which may often be the case for social housing, then we would expect impairments only to arise upon events that are either not expected by the social landlord or events that are outside the control the social landlord. Eastlands Homes Partnership Limited Guidance / approach required makes sense Grant Thornton Yes. However, we note that some of section 14 of the SORP repeats the wording from FRS 102. As with the rest of the SORP, we would recommend that the SORP is only used to interpret the requirements of FRS 102 that are specifically related to the housing sector, and not used to repeat the guidance without adding value. We also note that a sentence

3%

4%

93%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

don't know

no

yes

Q8 (N=100)


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in paragraph 14.4 gives an indication that development schemes or programs will not need to be impaired when completed. As this is not the full explanation , we recommend the section be rephrased to explain that when the development is completed to plan, in line with the internal appraisal, this would not result in an indication of impairment.

Institute of Chartered Accountants in England and Wales However, we have the following comments on the detail of paragraph 14.5: • In 14.5(b), we recommend that the words “rent that can be charged” should be changed to ‘net income that is expected to be collected less relevant expenditure’; • In 14.5(e) we recommend that the SORP defines what is meant by the words “where there is a plan”. We note that the example refers to “probable”. • Further guidance should be provided on what is meant by “material” in its various contexts. This might be illustrated by some specific examples indicating how the RP is meant to judge whether an event is material. We do not understand the purpose of including the reference to Section 18 of the draft revised SORP (Intangible Assets other than Goodwill). Longhurst Group Ltd The re-drafted section is clear that an impairment assessment is only required when there is an indicator. However, in the reference to development programmes there is an assumption that the cost of the programme is at the appropriate cost for the service potential. It would be helpful if this is clearly stated or referenced to 14.25-14.26. The current wording of 14.4 makes no reference to the cost being appropriate for the service potential. Magna Housing Group Does this mean that HAs wont have to impair if they decided to go ahead with a loss making scheme, nowing it would be loss making. This should not be allowed. The loss making amounts ('social value') should be charged to the I&E as impairment. If it was a concious decision to subsidise a loss making scheme, why not show the subsidy. What is there to hide? By not showing it, and reporitng the full profit from units so-called cross-subsiding the units is taking the benefit twice, once with an overvalued asset and second with overstated profit. Network Housing Group Ltd The examples require more detail and should be more appropriate to a social landlord who is developing. Origin Housing Limited Clarity could be further improved by including the sentance; "Where there is no indicator of impairment no impairment assessment need be performed." Smith & Williamson More emphasis should be placed on the list of indicators not being complete. Town & Country Housing Group It may still be hel;pful to explicitly state that it is expected that in most cases an indicator will not exist.

Question 8a: If not, what further information is required?

Accent Group Ltd None Argyll Community Housing Association Limited None Gateway Housing Association


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I think the SORP would be easier to follow if it contained all the relevant FRS102 text within the document as with the current SORP. This would reduce issues around applicability of paragraphs in FRS102 not specifically referred to. Home Group Limited Not applicable L&Q Housing Trust The definition of material is subjective. Longhurst Group Ltd As per comment on Q12 MidWales Housing Association Nothing further is required. SAFFRON HOUSING TRUST LTD It would be clarer if the following was added at the end of the first sentence of 14.4 ',if no indication exists the asset is not impaired'. Trafford Housing Trust Clarity may be required where there is cross subsidy for developments funded from within the organisation. e.g. the Trust has demolished 4 multi storey blocks and undertaken significant improvement works to other blocks, which have been subsidised by the Trust. York Housing Association More detailed clarification and examples.


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Question 9: 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?

Comments: Arhag Houssing Association the material indicators guidance supplied are sufficient steer. Beever and Struthers Para 14.5 could be clearer that although these may be the most common indicators, this is not a comprehensive list. Council of Mortgage Lenders (Social Housing Panel) 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. Deloitte It may be helpful to highlight in the SORP that the list setting out the indicators of impairment is not an exhaustive list and there may be other conditions that could also be indicators necessitating an impairment assessment. Dexia As per Q8 Eastlands Homes Partnership Limited Guidance and examples make sense Gentoo Group We would like more guidance of this in respect of annual revaluations and impact splitting out cash generating units

2%

6%

92%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

don't know

no

yes

Q9 (N=100)


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Halton Housing Trust Implementation mat drive a need for further guidance L&Q Housing Trust The change in rent regime policy is a cause for concern. Emphasis should be that the trigger should be based on material changes from the original planned approval. Material being one thta would have changed the decision making as to whether to proceed or not. MidWales Housing Association Generally yes. In addition I would include a comparison with OMV, even if the property is not being built for sale. Network Housing Group Ltd Example calculations would be helpful to the reader of teh revised SORP. Origin Housing Limited It is impossible to anticipate all the potential factors tht may lead to an impairment of a property and in our view the examples provided are sufficiently comprehensive to provide the guidance likely to be needed. Radian Housing thi should be in line with current accounting practise SAFFRON HOUSING TRUST LTD Cannot think of any other general examples Smith & Williamson See above comments on the use of the words "materiality" and "plan"

Question 9a: If not, what further guidance is considered necessary / useful? Accent Group Ltd None Argyll Community Housing Association Limited None Circle Housing A clarification of 'material' would be welcome and whether this is on a scheme or aggregate level. For example, switching tenure for one unit post-approval would appear non-material but on a scheme of 5 units maybe. Home Group Limited Whilst the impairment triggers included in the revised guidance provide a useful aide memoire, they should not be considered to be an exhaustive list and an RP should consider its knowledge of its asset base in the round in determining whether there is an indicator of impairment Institute of Chartered Accountants in England and Wales We recommend that paragraph 14.5 needs to emphasise more strongly that the five “most common” indicators identified do not constitute a comprehensive list. There may be circumstances in which none of the listed indicators exist, but the RP is aware of other factors that either individually or collectively indicate impairment. In all cases, where there is the potential for impairment to have occurred, and it might be material, it will need to be measured and, if applicable, the carrying value reduced. As an example, consider the situation where an RP has completed a complex scheme with various parts to it. If the RP was aware that both VIU and fair value less costs to sell were less than carrying value of the elements of the scheme it has retained on an historic cost basis, and at the same time it has recorded a gain


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either from disposals of assets or grant treated under the performance model, then this should of itself be regarded as an indicator of impairment. Trafford Housing Trust Whilst the example is useful, we feel that an example that was in relation to the housing sector as opposed to transport would have provided greater clarity.


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Question 10: Do you agree with the guidance set out in this draft section of the SORP for determining cash generating units?

Comments:

Accent Group Ltd Flexibility to define a cash generating unit as scheme level feels very appropriate. Asra Housing Group The examples given are helpful Bromford Group This is something that will need to be agreed with the auditors Chiene + Tait In principle we agree with the guidance however we consider that additional guidance is required to further link the impairment indicators to the level at which the RSL manages its property. This would mean that the RSL should be able to monitor both income and expenditure at the level of the cash generating unit. Coastline Housing Ltd The acknowledgement that schemes are approved as part of development programmes, where some schemes perform better financially than others, is welcome. However the example does not specifically make reference to the cross-subsidy that is inherent to make development programmes financially viable, for example from disposal of assets and re-lets at affordable rent. Council of Mortgage Lenders (Social Housing Panel) 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. Dexia

1%

12%

87%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

don't know

no

yes

Q10 (N=100)


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FRS102 is clear in the apporach and some flexibility is justifiied. Real world adoption of this may however require that this area is revisited in the light of the actual apporaches that are used by RP's Eastlands Homes Partnership Limited Possible risk of inconsistency of approach due to judgements Home Group Limited Paragraph 14.12 recognises that it is possible that the level at which a cash generating unit is determined might change over time. Within the examples, it is noted that this may be the case when a scheme moves from development into management. We feel it would provide clarity if the examples were extended to illustrate how the level of a cash generating unit might change and the implications for assessing impairment - for example by extending example 1 to show a scheme within the overall development programme which subsequently has an indicator of impairment once it is in management and how at that point the scheme must be considered individually and not with reference back to the wider development programme. Institute of Chartered Accountants in England and Wales However, the guidance needs to be more precise on the conditions attaching to the identification of cash inflows for the group as independent from other groups or assets. By ‘precision’, we mean that the principles for grouping assets should be clearly spelt out, not the criteria. The bus company illustrative example in the consultation paper is useful but it needs to be extended to show how, in the context of a housing association, the components of a CGU might change once an asset has moved from development into management. It is also worth noting that the bus company example is based on the scenario that each route cannot be operated in isolation; this scenario is not usually applicable to social housing providers except during the development phase. Jones Lang LaSalle In practice, this will give RPs welcome flexiblity in applying the guidance in practice. I agree that the original drive towards assessing impairment at the micro level, even down to parts of schemes that include mixed tenures, was not practical nor a fair reflection of how value would be realised in the real world. However, the new proposals will give RPs a great deal of licence to work at the very opposite, macro end of the spectrum if they so wish. There is nothing wrong with this in my view, but in practice, an RP could reasonably argue that decisions on business lines could be taken at scheme, county, regional or tenure (client group)level, such as all supported housing, or all shared ownership. It is possible, but unlikely in my experience, for impairment to arise at such a macro level. It would be important for RPs to have to justify their adopted approach in this regard. Longhurst Group Ltd The first example at 14.34 provides sufficient detail, should more of this be included in the main body of the text on cash generating units? Magna Housing Group The sector should look at units in as much detail as possible. Such as scheme level. The date that HAs have had to collect to do componant accounting should make this fairly simple Network Housing Group Ltd Commentary is not specific enough to clearly define a CGU. For instance it could be a scheme, or a line of business such as Private sector leasing or older persons or a geographic split where for instance a remote Private retirement scheme is located remotely from the remainder of the stock . Origin Housing Limited We believe that the SORP working party is right to set out principles rather than provide more proscriptive guidance. However, we believe that greater clarity needs to be provided on profit recognition on market and shared ownership sales within a cash generating unit which contains social housing that is being developed using cross subsidy from these profits.


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Radian Housing This may be easier to look at expected return, whether VIU-SP, WIU, EUV etc., depending on class of asset, rather than a mixed group, although this approach may work for mixed development decisions, this should be able to be sub divided to single units and to understand mix in total and impact on I&E RCT Homes I think 14.10 needs some balance. Fine to say that it is not about having 1 cash generating unit for a SL but also that you wouldn't expect to see each house or block of flats as a unit either. SAFFRON HOUSING TRUST LTD I interpret the guidance as allowing the whole of LSVT transferred stock to be classified as one cash-generating unit, it may be useful to include this in the guidance Smith & Williamson It is not that relevant since in practice RPs are not denied the option of curtailing one individual scheme. Spectrum Housing Group It would be useful to have a further housing example. Particularly an example of the valid treatment of a mixed tenure scheme. Also some guidance where a scheme includes open market sales could the whole scheme be impaired if the open market sales go down in value. Also does management arrangements come into consideration? The Guinness Partnership The comment about how management monitors operations could be taken to contradict the ‘largely independent’ principle. Unity Housing Association Ltd Each HA needs to make its own assessment of what a CGU is as we all generally operate in different environments with different market factors affecting day to day operations Your Housing Group Cash generating units should be consistent with how management decisions are made and how the business is operated. As noted previously, this may require more documentation to support decisions made, though this is considered to be achievable.

Question 10a: If not, why?

Bracknell Forest Homes I think we should avoid pooling of all assets to cover loss making investments. Bromford Group More examples would be beneficial Coastal Housing Group Insufficient clarity Deloitte We have considered the guidance set out in this draft section of the SORP for determining cash-generating units and agree that it, in certain limited circumstance, it may be possible for the identification of cash-generating units to change as a development programme moves from construction into management. However, we believe that there would also be similar scenarios where a change in the identification of cash-generating units would not be appropriate and therefore, this example could be misleading to users of the SORP.


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Gentoo Group Can't see the benefit of splitting out the pool of assets. Much more work and will expose charges to the p and l and could restrict future developments in particular areas versus a pooled approach. Grant Thornton The guidance is silent on determining the level of assessment for a mixed tenure development, however, this is picked up by example 1. The example explains that the development of a number of different schemes would be treated as one cash generating unit during the development phases, but then separated on completion. This judgement is quite key in determining the level of assessment of impairment for many associations, and therefore, it would be better to have this guidance in the main body of the SORP. That said, although we acknowledge that the assessment of a cash generating unit can change over time, it is not usually 'pre-planned' as demonstrated in the example, particularly if it is clear from the outset that there will be separate cash generating units once completed. In our view, these schemes within a development should be treated as separate cash generating units from the on-set. In practice, this should not make a difference as there is still a requirement to consider impairment at a more granular level if there is indication of impairment within a cash-generating unit.

Longhurst Group Ltd See comment to Q16 The Hyde Group There is a risk that given we have individual rental income streams we will be required by the auditors to look at this on a unit by unit basis. This is impractical particularly when trying to assess management costs and maintenance costs. Clarification on this point would therefore be appreciated. Trafford Housing Trust There is still additional clarity required in respect of how the definition of a cash generating asset is to be applied. The initial guidance suggests that this would be on a scheme-by-scheme basis. However, we would welcome further clarity as to whether there is further scope to expand / interpret this. WM Housing Group We consider that simply providing general principles and relying on the judgement of individuals to determine the level at which cash-generating units are set will lead to inconsistency within the sector. We would prefer a more explicit approach within the SORP, stating at what level a CGU would normally be determined.


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Question 11: Is there sufficient guidance included within the SORP to enable social landlords to determine cashgenerating units within their individual business?

Comments:

Argyll Community Housing Association Limited We do not understand why the consultation worked example for the housing SORP was based on a bus company Arhag Houssing Association Yes, in terms of the principle. No in terms of ensuring consistency across the sector. However it is recognised that this is the best approach due to the sector complexities. Baker Tilly We agree with the principle of not making the guidance too prescriptive and thereby restrictive but it shouuld depend upon each RP's circumstances. Berwickshire Housing Association There is likely to be less consistency without the SORP Working Party being more prescriptive, however I understand the rationale for this approach. Again it makes understanding accounts more challenging when comparing social landlords. Coastline Housing Ltd Yes, subject to comments in question 16 on cross-subsidy Deloitte We have considered the guidance set out in this draft section of the SORP for determining cash-generating units and agree that it, in certain limited circumstance, it may be possible for the identification of cash-generating units to change as a development programme moves from construction into management. However, we believe that there would also be similar scenarios where a change in the identification of cash-generating units would not be appropriate and therefore, this example could be misleading to users of the SORP. East Thames Group

6%

15%

79%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

don't know

no

yes

Q11 (N=100)


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I don't think a more prescriptive approach is practical so have said yes on the basis of pragmatism - and the overall intent that lies behind the proposals. Eastlands Homes Partnership Limited Determination inherently would be very judgemental EMH Group Ltd Cash generating units are likley to differ significantly bewteen different organisations. A more prescriptive approach is not therefore possible. Great Places Housing Group Cash generating units can be easily identified in terms of housing "schemes" or "estates" but it is hard to see what the CGU might be for pepperpotted properties spread across several local authority areas. Individual properties is too small but an artificial conglomeration of lots of dispersed homes is equally unhelpful. Institute of Chartered Accountants in England and Wales Question covered by comments at Q16 above. Jones Lang LaSalle Provided that the degree of licence now offered is understood and accepted. Network Housing Group Ltd CGU is not clearly defined. Examples would be helpful. Origin Housing Limited We believe that the provision of additional guidance might have the unintended effect of the SORP becoming unduly restrictive. In addition more detailed guidance would run a greater risk of becoming outdated due to changes in the grant funding regime and/or regulatory changes. Radian Housing This may be too vague, as cash generating units cou;d range from singe units to whole LSVT or ALMO. SAFFRON HOUSING TRUST LTD 14.3.4 Example 1 is very clear along with the definition in the glossary Smith & Williamson There is a significant risk that some RPs will interpret these paragraphs as permitting them to combine various schemes together that may have been approved at the same time or fell within an overall programme, as being one CGU for impairment purposes. The Guinness Partnership Agree that this needs to be a matter of judgement conforming to a general principle. Wheatley Housing Group Although there is likely to be some inconsistency created as a result WM Housing Group We do not consider that the guidance is sufficient. Under the current drafting, the SORP says that we “should consider factors such as how management monitor business activities, for example by regional areas, location of properties, type of activity”. Consider a case of a group structured so that each regional area is managed within a separate legal entity, and that is how the group monitors its business activities and reports performance to Management and Boards. This would seem to indicate that the group could therefore claim that the cash generating units might be by each type of


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activity (e.g. general needs, intermediate rent, shared ownership, etc) at legal entity level. This would not appear to contravene the final sentence in paragraph 14.10, but may not be what the SORP intended.

Question 11a: If not, what additional guidance is required?

Accent Group Ltd None Argyll Community Housing Association Limited None Coastal Housing Group Nore clarity is required Eastlands Homes Partnership Limited Unsure what additional guidance could be provided - perhaps more worked examples ?? Gentoo Group Benefits and reasons why we should not take a pooled approach GREENSQUARE GROUP LTD Clear examples such as classes of asset e.g. General Needs, Market Rent. Isos Housing Limited We consider that no additional guidance is required. Network Housing Group Ltd Examples of CGU required. Smith & Williamson The SORP should make clarify that the circumstances under which developments were approved or funded have no bearing on the CGU assessment unless those conditions or restrictions continue to apply. Once the RP has freedom to make choices on one scheme or unit separately from other schemes or units, the respective scheme or unit is a separate CGU. Spectrum Housing Group More guidance on mixed tenure schemes. Which is the overiding consideration - the development project appraisal or management of the scheme ? The Hyde Group It would be useful to have detail of what the acceptable minimum level of cash generating unit would be. Town & Country Housing Group Perhaps it should be made clear that some grouping is appropriate; our fear is that the wording could be interpreted as suggesting individual dwellings (whilst we recognise it is not mpossible this will be the case, as in example three, it should not be the norm. WM Housing Group We would like to see examples of what would and would not be considered appropriate as determination of cash generating units for a medium-sized social landlord. For very small associations with a limited range of activities, we consider that it could be very likely that a CGU might be all of a social landlord’s social housing properties. We consider


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that further guidance is required, and that examples need to consider the impact for small social landlords and those who do not have a significant development programme.

Question 12: 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?

Comments:

Accent Group Ltd a useful initial test. Asra Housing Group See comments under Q10. the aggregate cumulative £ should be disclosed where you have used VIU – SP Bromford Group We consider VIU should either be rebuild cost of an equivalent property type in the area or purchase price from the open market of an equivalent property. We would not consider entering into a deal with another HA to replace a property at EUV-SH as an appropriate valuation as there is no additional supply in social housing just an exchange between landlords CIPFA As noted in our response to Question 3, CIPFA has some concern that it is unclear how preparers will use the hierarchies in FRS 102 for measurement or for impairment. Against this background we do not have as clear a picture as we would like of the effect of allowing this approach to measuring recoverable amount. Nevertheless, CIPFA is minded to accept that the approach set out in the proposed revision can be made to work. Coastline Housing Ltd Yes, although the recoverable value calculation should acknowledge that assets transfer between landlords at a premium to EUV-SH. Council of Mortgage Lenders (Social Housing Panel)

2%

2%

96%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

don't know

no

yes

Q12 (N=100)


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Provided that there is adequate disclosure to support the calculations. Deloitte We agree that value in use may be appropriate in assessing the recoverable amount of the assets. However, the SORP should make clear that if this value does not support the book value of the assets, VIU-SP should then be calculated to assess if impairment is required, We noted here that service potential is defined in FRS 102. We would recommend the SORP working party include the definition in the SORP to aid social landlords. Dexia ... but must be supported by clear disclosure Eastlands Homes Partnership Limited A good starting point / reference point of any review Jones Lang LaSalle I agree that it should be one of the tools available to RPs in their tool boxes, but not the only option. In practice, in my opinion, an assessment of the value in use prepared internally by an RP is likely to underestimate the recoverable amount in relation to the available evidence of market transactional prices. It follows that RPs should have recourse to other assessment tools if VIU does not provide a sufficient solution. livin Housing Ltd Offers a practical solution MidWales Housing Association I would also allow an assessment using MVT as a practical and easy calculation to use. Network Housing Group Ltd VIU should be available to those who wish to use this method, but not exclusively as DRC and VIU-SP should also be avialable. Orbit Group As noted in the draft SORP, this can be readily calculated therefore may be the most efficient and practical way of performing an impairment test Plymouth Community Homes useful to leave as option in case useful Radian Housing This should be available as part of the Living Will process. SAFFRON HOUSING TRUST LTD The calulation is readily available WM Housing Group Value in Use is more likely to be readily available than VIU-SP, and as the value is likely to be lower than VIU-SP, if there is no impairment with Value in Use, there should be no requirement to perform further work and measure VIU-SP. Your Housing Group We agree with the comments on the SORP Working Party

Question 12a: If not, why?


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Gentoo Group Comparable purposes and can we pick and choose year on year Selwood Housing It serves no purpose without the component of social benefit Trafford Housing Trust Whilst we are broadly in agreement with this approach, we would want assurance with regards to how consistency could be achieved across the housing sector and whether such an approach could be liable to a certain level of subjectivity?


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Question 13: Do the worked examples included in the impairment section provide sufficient guidance for social landlords to apply the principles set out in the SORP?

Comments: Beever and Struthers More numerical illustrations would be helpful, do demonstrate more clearly how the numbers might work. In example 1, the word 'loss-making'' is inapproprate, and in the final paragraph, the wording could also be improved. Once a scheme is complete and moves into, management, it is not normally referred to as a 'programme'. Bromford Group Example 2 needs rewriting as it is confusing and not well written Circle Housing They would benefit from included illustrative numbers, illustrating the 'lowest of' methodology. Deloitte However, please refer to our comments in question 10 regarding example 1 First Wessex Development programmes are now supported by both SHG and Conversion Income from Affordable Rents. This conversion income is used to cover the overall losses within a development programme as required in the HCA contract. How should this be factored into the impairment assessment of a loss making single scheme development? Harrogate Families Housing Association A wider range of examples would be helpful. Home Group Limited Whilst the examples illustrate the principles well, we feel the examples would be enhanced by the inclusion of financial information to illustrate the impact on reported financial performance.

10%

16%

73%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

don't know

no

yes

Q13 (N=97)


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Institute of Chartered Accountants in England and Wales However, as in our comments under Question 9 above, we recommend the use of examples with numbers to articulate the underlying principles. L&Q Housing Trust Worked examples can often become detached from reality, especially in a changing sector, therefore become redundant. livin Housing Ltd As a HA relatively new to developments we feel that the examples provided sufficient guidance. MidWales Housing Association The examples provide guidance on the principles. However, examples 3 and 4 would be more helpful if they also included actual figures. Network Housing Group Ltd more detail required. Orbit Group Would be useful to include some worked examples with values illustrating scenarios e.g. treatment of grant where impairment arises Origin Housing Limited None Plymouth Community Homes worked examples with numbers would be much clearer Smith & Williamson Examples should be produced that illustrate the combination of cross subsidy accounting with impairment. Examples should be also be available that illustrate materiality and when an issue is considered to be sufficiently material to be an indication of impairment. there should also be an example illustrating the combination of the performance model on grant accounting with impairment. Sovereign Housing Association a. What would be helpful is not just the suggested prose comment, but worked examples with illustrative numbers. b. It would be useful to clarify the accounting where (in the early stages of a development) the impairment exceeds the asset carrying value. c. It would be useful if section 14 could explicitly recognise the implications for associations that account for housing properties at cost and those that account at valuation. d. The SORP perhaps isn't the appropriate place to do so, but it would be useful if there could be a "compare and contrast" with existing accounting treatment. e. Overall this is a very technical section of the SORP. Most will understand that it's effect will be to reduce the level of impairment compared with the previous draft, but the practical (as opposed to theoretical) application is likely to prove difficult. Spectrum Housing Group As stated previously more guidance would be of assistance WM Housing Group Whilst the worked examples are very useful, we would like to see further examples demonstrating the options for determining a CGU and clarifying which would not be appropriate. York Housing Association Need more worked details rather than words.


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Question 13a: If not, what further examples would be of value in applying FRS 102 and the SORP when assessing impairment of social housing properties? Please provide brief details

as to what examples would be of value. Anonymous Example of how impairment links with properties held at valuation Bromford Group In example 1 it would be helpful if the example worked for HA’s managing a programme whether funded by grant or not and that having a contract in place with the HCA shouldn’t be the only issue. We manage investments as a programme and strategic decisions are also at a programme level. Gentoo Group As stated above - more operational examples with cash generating units split out with new developments Grant Thornton Government grants are mentioned in paragraph 14.21, 14.29 and 14.31, but we would recommend that this is linked together to explain the importance of taking the grant into account in both the measurement of the recoverable amount and the carrying value so the calculation is completed on a like for like basis. Alternatively, this could be illustrated by way of an example. Hanover (Scotland) Housing Association I think it would be beneficial to have worked examples with figures to detail where impairment impacts or otherwise Isos Housing Limited An example using grant and an example of a mixed tenure scheme including a shared ownership element would be useful, as for example in appendix A5 of the SORP 2010. MidWales Housing Association As noted above, all the examples should include figures. Moat Homes Limited Regeneration of schemes Network Housing Group Ltd An example with a detailed development would be useful. Paradigm Housing Association Ltd No further examples required. The risk of providing examples is that they become viewed as best (or only) practice Plymouth Community Homes worked examples with numbers would be much clearer SAFFRON HOUSING TRUST LTD A VIU-SP example would be useful along with a flowchart of the process Spectrum Housing Group Further examples on mixed tenure schemes WM Housing Group We would like to see further examples covering the following topics: - • demonstrating the options for determining a CGU and clarifying which would not be appropriate. • A straightforward example for a non-developing association •


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the implications for smaller associations who hold and manage at individual property level (not by scheme) and report purely at entity level

Question 14: Is it sufficiently clear how accounting for government grant interacts with impairment?

Comments: Argyll Community Housing Association Limited We are of the view that grant is important enough to warrant a section on its own about its treatment Bromford Group Although not linked to government grants and impairment we would like to like to pick up a comment from the previous consultation about stock swaps and grant. We believe the grant in the receiving company should be disclosed separately in the accounts. Coastline Housing Ltd It would be useful if the ‘Value in use’ section made clear whether the receipt of new grant should be assumed in calculating the DRC for an asset. Deloitte Consistent with our response to the previous draft, whist we agree with the approach taken by the SORP we believe it needs to clarify that the approach only applies to general needs property grants. The SORP should also address other forms of grants such as ‘Homebuy’ which have not historically been amortised because they are not grants related to assets and this should be made clear. A worked example to illustrate the interaction of government grants and impairment would be helpful. Helena Partnerships Ltd Worked example would be helpful Isos Housing Limited

4%

18%

78%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

don't know

no

yes

Q14 (N98)


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If a social landlord knows that a property is going to bring in less when sold on the open market than its carrying value (after taking into account grant) then it would be preferable if any impairment calculation should reflect this reduction in value. In this case the grant element should be removed from the calculation and simply be treated as a liability. Longhurst Group Ltd The example helps explain this point MidWales Housing Association In calculating impairment, the cost of the property is ‘discounted’ by the grant received. Therefore, the impaired value is compared to the net cost of the property. Origin Housing Limited None Plymouth Community Homes worked examples with numbers would be much clearer SAFFRON HOUSING TRUST LTD 14.31 deals with carrying value and 14.21 deals with the inclusion in the VIU calculation Smith & Williamson See above. It is clear in relation to the amortised cost model but not the performance model.

Question 14a: If not, why? Bromford Group Should amortised or unamortised grant be used? And what happens in stock swap situation where grant is not recorded in the chart of accounts Argyll Community Housing Association Limited Grant is buried in the document not a substantive part of it yet grant is a key component of our sector Beever and Struthers A numerical example would be helpful, demstrating the impact of amortised grant. Derby Homes Ltd It is unclear whether the approach should be Depreciated Replacement Cost (DRC) less grant (broadly similar to current arrangements) or whether DRC is offset by a grant liability and, if the latter, whether this liability can be depreciated (if so over what period?) or not. The latter appears sensible as long as the asset can be revalued periodically. Clarity on this issue would be helpful. Gentoo Group Disagree with amortising a grant that is never fully yours to take - needs to be recycled if property is disposed Home Group Limited We believe that the examples, with financial information, should be extended to highlight the interaction between government grants and impairment. Institute of Chartered Accountants in England and Wales We recommend that example 3 be extended to show the effect of impairment on the related grant. We also recommend an additional example to cover the interaction of grant and impairment in relation to property, plant and


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equipment (PPE). If PPE is carried at cost less depreciation, then the associated grant has to be carried using the accrual model, which means in effect at amortised cost also. When considering impairment, the carrying value is considered to be the PPE carrying value less the grant less amortisation. It would be helpful to illustrate with an example showing how this calculation is to be performed. Isos Housing Limited The position of the grant when calculating the carrying value is unclear and needs to be clarified. Jones Lang LaSalle In my experience, there is commonly confusion in the sector about the treatment of grant in stock rationalisation transactions, and in particular, whether values (prices) are stated to be net or gross (inclusive) of grant. The correct position of course is that EUV-SH values (trading prices) in this regard ignore grant, and assume that the benefit and liability to repay roll over to the purchaser. In terms of the examples given, it may be helpful to clarify the correct treatment of grant in considering the recoverable amount (particularly in Example 3). Plymouth Community Homes worked examples with numbers would be much clearer Sovereign Housing Association It would be helpful if grant were included within worked numerical examples. Spectrum Housing Group The comments on grant are scattered throughout the guidance - a summary of grant treatment would be useful and a worked example WM Housing Group For clarity, it would be helpful if the wording of paragraph 14.8(d) could be expanded to confirm that the assessment of carrying value is net of the unamortised grant held on the balance sheet. York Housing Association Need examples.

Documents

Summary of all responses received Organisationss3-eu-west-1.amazonaws.com/doc.housing.org.uk/Editorial/SORP... · Ardenglen Housing Association . Argyll Community Housing Association