Non-current Asset Valuations - Application of Indexation & Materiality Review

When determining the value of Departments' non-current assets as at 31 March each financial year, it is customary to apply a percentage increase/decrease to reflect movements in inflationary measures. This process is known as "indexation".

Finance Shared Services (FSS) applies indexation to Departments' assets on their behalf, utilising the Account NI shared services solution. The indices applied come from a number of sources, including the Office of National Statistics (ONS) and Land & Property Services (LPS).

While LPS provides March indexation data for land and property assets in a timely manner, indices compiled by ONS are published in arrears, causing difficulty for Departments in complying with the requirements of faster closing and in preparating forecasts. Historically, publication of March indices has often not taken place until well into the May period, although improvements in the timeliness of publication by ONS has meant that March indexation data is now generally available by mid- to late-April.

To overcome the issues surrounding the timeliness of publication of March indexation data, it was agreed that, as an acceptable approximation, FSS would apply December indices for the computation of 31 March asset values. As a corollary to this, it was also agreed that, once March indices have been published, a verification exercise would be carried out to confirm that there is no material discrepancy in Departments' asset values as a result of December indices having been applied instead of March indices.

The current process for the performance of this verification exercise is as follows:

• FSS recompute each Department's non-current assets value as at 31 March, applying March ONS indices;
• FSS calculate the percentage variance between the recomputed asset value and the asset value per the balance sheet;
• FSS provide Departments with the detail of the percentage variance for review;
• If the variance is considered material, Departments should advise FSS of the requirement to adjust the closing 31 March asset values.

The compilation, distribution and review of this information is extremely time-consuming and labour intensive; however, in the majority of circumstances, the computed variance is negligible.

In light of this, FSS is considering varying the indexation materiality verification process to make it more streamlined and is seeking Departmental input into this exercise. Given the negligible variances observed in most instances, FSS is proposing the application of a de minimis threshold of 1%, whereby FSS will only issue recomputed asset data for Departmental review if the calculated percentage variance exceeds this; i.e. the revised process would be as follows:

• FSS recompute each Department's non-current assets value as at 31 March, applying March ONS indices;
• FSS calculate the percentage variance between the recomputed asset value and the asset value per the balance sheet;
• If the calculated variance is greater than 1% for a particular Department, FSS will provide that Department with the detail of the percentage variance for review;
• If the variance is considered material, the Department in question should advise FSS of the requirement to adjust the closing 31 March asset values.

In addition to this, given improvements in the timeliness of publication of indexation data by ONS, FSS is also interested to learn whether there is any appetite amongst Departments to move away from the utilisation of December indices, and instead use more up to date data. However, it should be borne in mind that this could lead to delays in the computation of Departments' final 31 March non-current asset position; for example, if March indices were utilised, it is unlikely that FSS would be able to provide Departments with a final non-current asset value until the beginning of May at the earliest.