Q4: If yes, do you agree with the proposed amendments in relation to housing property tenure types? Yes

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1 THE 2014 STATEMENT OF RECOMMENDED PRACTICE Q1: Please provide the following information Name: Rebecca Nelson Company: PwC LLP Address: Phone Number: Q2: Type of organisation Accounting firm (eg. PwC) HOUSING PROPERTIES Q3: Do you agree that guidance over the treatment of housing property tenure types as either Property, Plant and Equipment or as Investment Properties should be included in the SORP? Agree Additional comments We agree that the guidance on the treatment of housing property tenure types as property, plant and equipment or as investment properties should be included in the SORP and fully comply with FRS 102. We recognise that in the housing sector there are various tenures held which result in a broad range of rents and ownership interests and we support the view that the SORP should provide clarity on accounting for different types of assets. FRS 102 is clear that when accounting for assets held for social benefit, the assets should be treated as property, plant and equipment at either historic cost or revaluation. Assets not held primarily for social purposes, but held for income generation and/or capital appreciation, should be accounted for as investment assets. On this basis we agree that the proposed amendments are reasonable. Q4: If yes, do you agree with the proposed amendments in relation to housing property tenure types? EMPLOYEE BENEFITS (INCLUDING PENSIONS) Q5: Do you agree that SHPS and SHAPS should be accounted for as defined contribution schemes? (please give your reasons and alternative accounting treatment). We have not seen any evidence to support whether or not the Pensions Trust can determine the share of assets and liabilities. Only if the Pensions Trust is unable to determine the share of the assets and liabilities will the standard permit accounting for the scheme as a defined contribution scheme. We note that the ITC is inconsistent here with question 5 of the original ITC document (question 7 of the survey) which implies that Pensions Trust can estimate the pension plan liability. Q6: Do you know of any other multi-employer pension plans where there is insufficient information on a reasonable and consistent basis available to social landlords to identify their share of the plans underlying assets and liabilities? Q7: FRS 102 will require the past service cost liability for SHPS, SHAPS and other multiemployer plans that are accounted for as defined contribution plans to be recognised as a liability in the statement of financial position. What impact will this change in accounting policy have on social landlord s financial statements? We refer to our answer to question 3 of the original ITC (question 5 of the survey), and query how an organisation could establish the pension liability without further information from the Pensions Trust. The impact of such a liability will be an increase in the RSL's gearing and to switch some annual costs from operating expenses to finance expenses, which would reflect a more true and fair financial position.

2 GRANT (AND IMPACT ON VALUATION ACCOUNTING) Q8: For those social landlords accounting for their assets at historical cost, do you agree that the accrual model for government funded SHG is the most appropriate model to apply? Q9: If you answered no to question 8, please give your reasons why, including: a) How the performance model is a more appropriate treatment of grant See below b) The reasons why allowing a choice between the accrual model or performance model is appropriate and will achieve consistency across the sector. FRS 102 allows an accounting policy choice. It is our view that unless there are compelling reasons for the need for consistency, which should be set out in the SORP, RSLs should detail in their accounting policies why either the accruals or performance method is the most appropriate model to apply for their circumstances. SHG should be treated in accordance with the substance and purpose of the grant. The RSL should consult the written terms of the grant to understand the performance conditions and when they have been met. Q10: For those social landlords accounting for their assets at valuation, which of the following options do you believe is most appropriate for government funded SHG Other Please state your reasons for your decision. In addition indicate whether the impact of the above models would cause you to reconsider carrying property assets at valuation. We believe that because FRS 102 provides a choice to use either the accruals or performance method, RSLs should detail in their accounting policies the model they are applying, the reasons why that model is the most appropriate for their circumstances and apply the model consistently. SHG should be treated in accordance with the substance and purpose of the grant. The related performance conditions should be confirmed within the written terms of the grant. All housing property assets should be assessed for impairment annually, regardless of the treatment of the grant. We believe that in order to agree that the conditions of SHG have been met on completion of the property, it would first need to be confirmed that this is consistent with the conditions of the grant, be that in accordance with the Capital Funding Guide (CFG) or other written terms of the grant. Q11: If you clicked option c 'other' above, please give your alternative and the reasons why this would be more appropriate. We believe that because FRS 102 provides a choice to use either the accruals or performance method, RSLs should detail in their accounting policies the model they are applying, the reasons why that model is the most appropriate for their circumstances and apply the model consistently. SHG should be treated in accordance with the substance and purpose of the grant. The related performance conditions should be confirmed within the written terms of the grant. All housing property assets should be assessed for impairment annually, regardless of the treatment of the grant. We believe that in order to agree that the conditions of SHG have been met on completion of the property, it would first need to be confirmed that this is consistent with the conditions of the grant, be that in accordance with the Capital Funding Guide (CFG) or other written terms of the grant. Q12: Do you agree that SHG should be amortised over the useful economic life of the asset s structure only? (please give your reasons why and alternative accounting treatment) If the accruals method is to be applied, it would to be appropriate to amortise the SHG over the economic useful life of the assets for which the grant was given. Therefore each grant will need to be assessed to determine if it was given to fund the infrastructure of the properties, or the replacement of components of the properties. The grant should then be amortised over the relevant assets accordingly. Hence, if the SHG is given to fund the infrastructure of the assets, we agree that it is appropriate to amortise the grant over the useful economic life of the infrastructure. If the SHG is given to fund other components, we believe the grant should be amortised over the useful economic life of those components. Q13: Do you agree that RCGF should not be recognised at the point of disposal of the asset but rather be disclosed as a contingent liability? (give your reasons why and alternative accounting treatment) We believe that at the point of disposal of the property, the grant is repayable after three years unless the RSL recycles the grant to avoid repayment. The obligation to recycle and therefore construct a new property means the RSL must take a

3 specific course of action to avoid the liability. This suggests that recycling within three years is a performance condition of the grant that hasn t yet been satisfied at the point of disposal and therefore the grant is repayable until this condition is met. At the point of disposal the RSL should therefore recognise the unamortised portion of the grant within liabilities. If the grant is subsequently recycled then it will follow the same treatment as a new grant. However we recognise that there may be certain situations, such as accounting for the replacement of components, which may trigger a proportion of SHG to be recognised in the accounts and the need for a contingent liability. We recommend that the final SORP examines both of these aspects in more detail. Q14: Do you agree with the accounting treatment detailed in the illustrative example of showing amortised and residual SHG as a contingent liability? (please give your reasons why and alternative accounting treatment. Provide an illustrative example) See our response to question 9 of the original ITC (question 13 of the survey). STOCK SWAPS Q15: Do you agree that the fair value of the purchase price when considering stock swaps should be the EUV-SH of the properties that are acquired? (please give your reasons why and an alternative accounting treatment) te - our answer is to this question but would like to include the following commentary: In accordance with FRS , exchange of non-monetary assets should be recognised at fair value (unless the transaction lacks commercial substance, which we do not believe is the case). The fair value should be based on the intended use of the properties. If the properties are to be used to provide social housing, then EUV-SH would be the appropriate fair value of the properties. If the properties are intended to be sold or redeveloped, open market valuation would be most appropriate. Q16: Do you agree that the government grant linked to the assets swapped between social landlords should be recognised as an obligation by the receiving social landlord? For example, do you agree with the alternative view expressed in paragraph 50? (please give your reasons why and an alternative accounting treatment) te - our answer is to this question but would like to include the following commentary: Grant should be recognised by the receiving RSL where the conditions attached to the grant have transferred to the other party. The CFG makes reference to the transfer of grant from one RSL to another on the transfer or disposal of social housing properties. The value of the grant obligation should be assessed at the point of transfer to ensure the proportion of the Capital Grant is agreed with the grant-giving body. Specifically, Recovery of Capital Grants and Recycled Capital Grant Fund General Determination 2012 paragraph 25 states that when land or Property on which Capital Grant has been paid becomes vested in, or is leased for a term of years to, or reverts to, another Registered Social Landlord, and a Relevant Event subsequently occurs, this Determination shall apply to the entire Capital Grant paid on the land or Property as if the Capital Grant had been made to that other Registered Social Landlord. Q17: Do you have a view on the wider implications of the treatment proposed by the SORP Working Party in paragraph 49, for example on the treatment of grant in consortium and/or inter-company transactions? Additional comments It is our view that, as stated in our response to question 12 of the original ITC (question 16 of the survey), the grant should be recognised at the point of disposal / transfer where the conditions attached to the grant have transferred to the other party. AGREEMENTS TO IMPROVE EXISTING PROPERTIES Q18: Are you of the view that guidance over the treatment of agreements to improve existing properties should be amended in the SORP to comply with FRS 102 and ensure that agreements to improve existing properties are recognised on a gross basis?

4 Q19: If you answered yes to question 18, do you agree with the proposed amendments in relation to agreements to improve existing properties? (why not and what alternatives (with reasons) do you support) Our answer is to this question but would like to add further commentary: However, we also note that the SORP should require RSLs to determine the substance of the transaction first that is consider whether the RSL is acting as an agent or a principal and then apply the relevant accounting treatment in line with chapter 23 of the FRS. FINANCIAL INSTRUMENTS Q20: Do you agree that the SORP should not repeat section 11 or section 12 in relation to financial instruments, but rather clearly reference FRS 102 and provide a technical note? (please explain your reasons) Our answer is to this question however we would like to add the following commentary: FRS 102 is clear and the technical note to the SORP as referenced in 17 will be of assistance to users. However, we note that the example set out in the ITC on page 20 correctly sets out the treatment of the loan under Section 11 of the FRS, but seems to have overlooked the fact that in this case the this loan would qualify as a Public Benefit Entity Concessionary Loan under Section 34 of the FRS which would recognise the loan at their face value (i.e. the same as they currently do under UK GAAP unless they are currently applying FRS 26). Q21: The technical note to the SORP is intended to provide worked examples of how to account for common financial instruments that social landlords have. What are the common financial instruments social landlords have which should be included in the technical note? In addition to normal bank loans, RSLs issue bonds (both market rate coupon and nil coupon/ deeplydiscounted) and have interest rate swaps. Often their loans will comprise an overarching loan facility agreement within which are individual loans that they take up. When determining how to account for the loans it is therefore necessary to look both at the loan facility agreement to determine the general loan conditions and then at the individual loans themselves to determine the interest rate, the loan term and any associated swaps (which may or may not be embedded). TRANSITIONAL ARRANGEMENTS Q22: Do you agree with the key changes to accounting policies considered in this ITC? If not, what other key changes do you believe should be considered separately by the SORP Working Party? Q23: Do you agree that other changes to accounting policies, changes to terminology and changes to the presentation and disclosures are best addressed in a transitional section of the revised SORP? Q24: Are there any exemptions in paragraph of FRS 102 that you believe should not be available to social landlords? NARRATIVE REPORTING Q25: Do you agree that there is value in narrative reporting as part of the financial statements beyond the requirements of statute, for example the Companies Act? Additional comments We agree that there needs to be some commentary on the sector required that is specific to housing. This allows the sector to compare itself and gives context to the accounts. Q26: Do you agree that all social landlords with more than 5,000 homes in management should prepare an OFR?

5 (please provide an alternative threshold or state the reasons why you believe an OFR should not be required) Our answer to this question is but would like to include the following commentary: We agree that management should prepare an OFR and note in practical terms this could be subject to a de minimus. However, this should not exclude those smaller organisations that may wish to add to their financial statements. Q27: Do you agree with the current reporting requirements of an OFR, including the required headings that are to be included in an OFR? (please provide those headings that you believe should be required) Our answer to this question is but would like to include the following commentary: We agree that a framework is necessary in order to prepare comparable and relevant financial statements. However, we note that there needs to be scope for tailoring to avoid boilerplate answers, lack of specifics and generalisations. PAGE 18: ADOPTION DATE Q28: Given the timescales outlined in paragraph 66 above do you plan to early adopt the new SORP based on FRS 102 for the year ended 31 March 2015?