Local elections in May 2026 saw around 2,000 new councillors elected to local authorities in England, along with many new members in the Welsh Senedd and the Scottish Parliament.
One of the many challenges facing these new councillors is understanding the financial position of the authorities that they have joined. Even for members with previous financial experience, the complexity of local government accounts makes this a daunting challenge. So how can local authority finance teams support their new leaders in understanding the accounts?
Meeting accounts users’ needs is a vital part of the role of the finance director
The needs of the accounts user should, of course, always play a central role in the preparation of financial reports. The International Accounting Standards Board’s Conceptual Framework for Financial Reporting states that the objective of all financial statements is to provide information that is useful to the users.
Meeting accounts users’ needs is a vital part of the role of the local authority finance director. Much of the job involves explaining what the numbers mean and their implications for the decisions that councillors have to make. It is therefore absolutely vital to ensure that the financial information they receive is clear, relevant and reliable.
In considering the users of financial reports, it is important to clarify who is meant by ‘the user’. Both elected councillors and local residents could be considered primary users. Elected councillors are responsible for local authority spending and for holding the local authority, cabinet members and officers to account. Local residents, meanwhile, are the ultimate beneficiaries of local authority services, and in turn hold their elected representatives to account through the ballot box. But given their statutory oversight and governance responsibilities, elected members are arguably the most appropriate primary users.
Councillors’ needs
Councillors want, above all, to know three things. First, how financially resilient is the council? Councillors are increasingly nervous on this count, with a growing number of councils in England asking the government for exceptional financial support. By analysing the balance sheet, the user can assess the authority’s sustainability – for example, by comparing reserves with the level of expenditure.
The IFRS financial statements cannot readily be compared with a council’s budget
Secondly, given that financial resources are constrained, how is the council performing against the budget that it is required to set every year? As performance against budget isn’t currently a mandatory element in the accounts, and councils don’t publish details of outturn against budget each year, this does not form part of the statutory accounts.
As mentioned in my previous AB article, the IFRS financial statements cannot readily be compared with a council’s budget. The solution would be a separate ‘accountability report’, which would show the budget outturn and reconcile it to the IFRS surplus or deficit. This mirrors how central government handles similar issues.
The introduction of an accountability report would be a great help to users of the accounts by showing performance against budget and linking this to the statutory financial statements.
Thirdly, what is the council’s strategy for addressing the challenges it faces?
Not just numbers
Understanding how a council is responding to the challenges requires not only numbers, but also a narrative. Local authority financial statements are already accompanied by a ‘narrative report’, which normally includes details of the authority’s medium term financial strategy and its view of the risks and opportunities that it faces.
Narrative reports could be improved and made more consistent
In his 2020 review of local authority financial reporting and external audit, Sir Tony Redmond saw expanded narrative statements as a key option for enhancing the transparency and usefulness of local authority financial statements. Today’s narrative reports go some way towards meeting this aspiration, but they could be improved and made more consistent.
In summary, new councillors would benefit from seeing not only the existing financial statements, including the balance sheet, but also a new accountability report showing performance against budget, as well as an improved narrative report to tell the story behind the numbers.
As local authority accountants, we already provide some of the information that users require. This now needs to be augmented to provide our elected members with a complete picture.
