Component Accounting

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Find out more about component accounting and the work we are doing in this area to benefit our members.

Component accounting and covenant compliance

The introduction of component accounting is having a significant but varied impact upon housing association financial statements and loan covenant compliance. A number of housing associations that have adopted component accounting have received correspondence from lenders in relation to covenant compliance.

Devonshires has produced a briefing note on the action housing associations should consider in relation to their loan agreements in the light of the implementation of component accounting.

National matrix of property components

The Federation, in collaboration with property surveyors Savills, has published a national matrix of property components, which is available to download. Housing associations implementing the new component accounting rules can use the matrix to split property values into constituent components for that discrete sub-groups of properties for which they possess insufficient underlying records. The matrix is available for £65 + VAT for members, and £99 +VAT for non members.

Background to the matrix

As associations ensure that their financial statements are compliant with the new component accounting rules in time for the 31 March 2012 deadline, many are discovering that occasional deficiencies in their historical records are preventing them from splitting some property values into their constituent components.

What has become clear from the national SORP roadshows of autumn 2010 is that most finance directors have now at least begun to consider the task of getting the financial statements component accounting-compliant in time for the financial year commencing on or after 1 April 2011. Encouragingly, many associations have even begun to construct a project plan and a few have already commenced the conversion process. A smaller group still have adopted component accounting ahead of the 1 April 2011 implementation date.

One of the early pieces of universal feedback from associations is that they are encountering gaps in their accounting records for parts of their property portfolio preventing them splitting these properties into their constituent components. In many cases, associations have attempted to reconstruct the information required from their own asset management records, stock condition survey data or information from recent developments. Where these sources fail to provide sufficient information, associations have commissioned surveyors’ services. By early autumn, it was clear that individual associations were facing four-figure sum surveyors bills to provide bespoke information that might be actually be transferrable to other associations.

In a bid to save the sector significant costs, the National Housing Federation approached property surveyors Savills to produce a national matrix of property components that could be applied nationwide, and be used as a ready-reckoner in those rare circumstances where, for a subset of the property portfolio, housing associations have insufficient records to split property values into the constituent property components.

Savills has spent months researching, modelling and piloting the matrix they have also spent time liaising with key auditors in the housing association sector. Generally, Savills has obtained broach acceptance from auditors that the matrix can be used but only by associations in exceptional circumstances when all other reasonable sources of internally generated information has been exhausted. Therefore, associations are advised to agree in advance with their own auditors the extent to which the matrix can be used as a suitable basis for estimating component values for their property portfolio

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