Landlords brace for new accounts rules

Associations are required to move to ‘component accounting’ by 1 April 2012 in order to comply with new rules set by the International Accounting Standards Board. The National Housing Federation is expected to publish a guidance note on how this can be achieved next month.

Component accounting involves splitting assets such as homes or in some cases entire schemes into parts, such as kitchens, bathrooms, windows and doors.

This means associations have to record several assets for every home, adding thousands of pounds to administration and software bills. It will also cut apparent profit, as components become capitalised and depreciate faster than entire homes.

One housing association professional said he was warned by a lender that creditors, struggling in the current economic climate, might use the change to insist associations have broken their covenants.

Keith Exford, chief executive of 55,000-home association Affinity Sutton, said: ‘In the past, private lenders have generally chosen to accept that accounting changes can change the condition of their books, but they may be more reluctant to take that view.’

The potential impact is causing ‘significant board-level concern’ among housing associations, according to Karen Conneely, marketing manager for consultancy Real Asset Management, who says associations should undertake depreciation modelling.

Philip Ingle, finance director at the 5,000-home association South Stafford Housing Association, said: ‘It’s going to be very awkward potentially, getting a balance sheet into a position to have all the different components. We will need to look at extra staffing.’

Helen Laverick, finance director at Gentoo, said the change will cost the association around £20,000 in labour costs, and more on software.

Gavin Smart, assistant director of research and futures at the NHF, said: ‘I think the sector is ready for component accounting, there is a degree of administrative work, but it’s mainly about the presentation of accounts.’

Have your say

You must sign in to make a comment