Summary of responses received from Organisation Name Accent Group Ltd Adactus Housing Group Limited Affinity Sutton Alliance Homes Alpha (RSL) Limited Arcon Housing Association Arhag Houssing Association Asra Housing Group Bracknell Forest Homes Bromford Group Byker Community Trust Limited Central & Cecil Housing Trust CHS Group Circle Housing City West Housing Trust Coastline Housing Ltd DCH Derby Homes Ltd East Thames Group Eastlands Homes Partnership Limited EMH Group Ltd First Wessex Four Housing Freebridge Community Housing Gateway Housing Association Gentoo Group Great Places Housing Group GREENSQUARE GROUP LTD Halton Housing Trust Hanover Housing Association Harrogate Families Housing Association Helena Partnerships Ltd Home Group Limited Hundred Houses Society Isos Housing Limited L&Q Housing Trust livin Housing Ltd Longhurst Group Ltd Look Ahead Care and Support Magenta Living Magna Housing Group Moat Homes Limited Network Housing Group Ltd North Devon Homes Notting Hill Housing Trust One Housing Group Orbit Group Origin Housing Limited Orwell Housing Association Limited Paradigm Housing Association Ltd Plymouth Community Homes Progress Housing Group Radian Housing Rooftop Housing Group Limited Sadeh Lok Housing Group SAFFRON HOUSING TRUST LTD Selwood Housing Sentinel Housing Association Limited shropshire housing group Shropshire Rural Housing Association Southern Housing Group Sovereign Housing Association Spectrum Housing Group Staffordshire Housing Group SYHA Ltd Thames Valley Housing The Guinness Partnership The Hyde Group Town & Country Housing Group Trafford Housing Trust Unity Housing Association Ltd Waterloo Housing Group WM Housing Group York Housing Association Yorkshire Housing Your Housing Group Page 1 of 39
Question 1: Do you agree with the SORP Working Party s conclusion that the assessment of whether a property is held for its service potential should be consistent with the principles set out in the earlier section of the SORP for classifying a housing property as property, plant and equipment or investment property based on its intended use? Q1 (N=75) yes 97% no 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Comments: Accent Group Ltd An alternative approach would bring more complexity, cost and reduce the usefulness of the accounts. Adactus Housing Group Limited In general a housing association's properties are built, held and managed for social housing purposes for community benefit in line with its business objects. This is very much different to a profit making organsiation which uses its fixed assets for the generation of profit. It may be more transparent to have a separate fixed asset category for social assets which fall outside the illogical impairment regime. Circle Housing It would be helpful to further define the use of the production or supply of services Eastlands Homes Partnership Limited Consistency of approach to classifying properties (be it Service Potential, PPE, Inv Prop) is desirable. Home Group Limited We agree that the assessment of whether a property is held for its service potential should be consistent with the approach taking in classifying a property as either PPE or investment property. In arriving at a decision as to how to treat a property, a Registered Provider is obliged under the draft SORP to give consideration as to whether an asset is Page 2 of 39
held for social benefit. We believe that the assessment of whether an asset is held for service potential / held for social benefit are, in essence, one and the same. We note however that similar assets may be held for different reasons by different RPs. livin Housing Ltd Whilst the overall reason an asset is held may be considered, several assets such as shops etc can be held for the economic benefit of the local community. This allows a provider to maximise rental income that actually supports the overall charitable objectives of an organisation. Therefore we believe that these should not necessarily be valued at Market Value Look Ahead Care and Support As noted in the previous consultation response it would be helpful for the SORP to clarify whether commercial property let at market rates but forming part of a development for social benefit (e.g. Doctors surgeries) could be classified as held for social benefit because of its purpose in context. In other respects the conclusion is sound because it provides consistency within the SORP and does not draw the definition of service potential so broadly as to be inconsistent with holding investment properties at valuation, which is widely accepted practice. Magna Housing Group The principle that assets should be held in the BS at a realistic realisable value should prevail. It is dangerous to overstate asset values in BSs, that s the reason for the financial crash. The argument that social housing assets could be used for a different purpose to generate additional funds is not correct, because they would normally have grant or transfer covenants attached which mean that they cannot be used for other purposes. Those that truly can, say a HA bought a house on the open market and decided to let it at social rent, should be held at full OMV because that is what it could sell it for if is wanted (or had) to. This is basic accounting fundamentals that should have applied to the HA sector from the start. Using the augment that HAs must develop so we will bend the rules, should not be accepted by the FRC in my opinion. Lender are perfectly capably of assessing whether they want to lend or not, and if showing assets at a realisable value means that they don t want to, that it probably the right decision to stop HAs overstretching themselves. Network Housing Group Ltd The sector classifies properties for a social purpose which is consistent with the SORP approach and therefore units have service potential. Radian Housing Value to business should be measured against intended use, wih criteria used to encompass the overarching purpose SAFFRON HOUSING TRUST LTD It makes sense if agree that Social Benefit = Service Potential Sovereign Housing Association It is not wholly clear, but we believe that what is being proposed is that housing property classified as PPE is considered to be held for its service potential whereas anything classified as investment property is not. The Guinness Partnership Shops and other commercial property are sometimes included in a housing development as a planning or funding requirement for the whole scheme. Clarification would be useful if such assets, that are provided and held due to such external requirements for social benefit purposes, can be treated as PPE. If not, then there is a case that such investment assets, as part of the same cash generating unit as the housing properties, could also have service potential WM Housing Group This will help to maintain the integrity and consistency of financial reporting within the housing sector. Your Housing Group Page 3 of 39
This should ensure consistency throughout the financial statements. This will require associations to document more on assets and their intended use, though this is considered to be achievable. We would want the ability to be able to reallocate assets if their intended purpose changes. Page 4 of 39
Question 2: If the SORP permits social landlords to use VIU SP as an alternative estimation technique in determining value in use when performing an impairment assessment, do you consider that the resulting financial statements would provide sufficient, relevant and reliable information to the users of those financial statements, provided appropriate additional disclosures were made setting out the extent to which it has been applied? Q2 (N=72) yes 92% no 4% don't know 4% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Comments: Accent Group Ltd However, the suggested process will be subjective and judgement could vary widely between RP s making comparability more difficult. More subjectivity may require Boards and auditors to seek more external advice in deriving VIUSP leading to increased costs. It might also allow boards to ignore the cash impact of development on organisations which stores up risk. This outcome however, is significantly more preferable to the previous SORP draft. Asra Housing Group Yes as long as the disclosure in the notes to the accounts is indeed detailed enough. Bromford Group Appropriate for SORP to add that this should be disclosed as part of the accounting policy and which assets it has been applied to. Circle Housing The only issue will arise when an RP has to use RP to RP transaction as the basis of DRC when there is no active market. Derby Homes Ltd Other approaches would be a threat to housing development potential Page 5 of 39
Dexia... this should be OK, but remains reliant on Management giving full disclosue of the basis on which this was done and that Auditors equally remain strong in enforcing a strong approach - they must not become complicit in allowing Management to water down their approach East Thames Group On the basis that nothing has really chnaged in terms of cash flows and objectives as a result of FRS 102, this seems appropriate. Eastlands Homes Partnership Limited Appropriate additional disclosures would be needed to aid the reader of the accounts. Gentoo Group New developments - How would we account for planet smart costs i.e. building homes that are above standard code but would address fuel poverty - would this element have to be impaired. Quality versus quantity - would we all have to build minimum standard at cheapest cost Great Places Housing Group Some users of financial statements will grasp this more easily than others Harrogate Families Housing Association But non-experts in the field may still have some difficulty understanding L&Q Housing Trust Depreciated Replacement Cost is a clear and measurable altermative fully understood by all users. livin Housing Ltd Using a VIU-SP method such as Depreciated replacement cost will eliminate fluctuations due to impairment under EUV- SH and result in more comparable and reliable information. Look Ahead Care and Support For RPs producing financial statements on a historical cost basis there is already a divergence between information in the accounts and the information required by lenders and the use of VIU-SP would not significantly change the quality of information provided to lenders through the statutory accounts. VIU-SP provides an appropriate estimation technique consistent with the principle of service potential adopted in the Accounting Standards Board interpretation of accounting principles for public benefit entities, and in this sense it provides more relevant information to other users of the accounts concerned with the social purpose of the RPs activities. Magna Housing Group No, becasue this method would over-value the assets. A user of the accounts wants to know that the value of assets in the balance sheet is no more than their true financial value. A BS is a financial statement, not a social statement. Also funding loss makeing schemes from profit making ones and therefore holding assets at an amount more than their market value, double counts the 'subsidy' over time. Becasue the assets are valued assuming this subsidy, yet the profits are reported each year through the I&E from the units that are suposed to be subsiding the loss making ones. Assets should be held at the lower of cost and a fair realisable market value. Network Housing Group Ltd yes, provided additional disclosures are made in the accounts. One Housing Group I agree, however the SORP Working Party needs to ensure that there is consistency in the method used to calculate the VIU-SP within the sector. Page 6 of 39
Origin Housing Limited We believe that where an impairment provision would have been required had a Value In Use (VIU) methodology been used but no provision has been raised because a VIU-SP methodology has been used the amount of the impairment that would have been charged under the VIU basis should be disclosed. We believe that in these circumstances it is important that users of the accounts are informed of the value attributed to assets that is not supported by future cash flows. Radian Housing VIU-SP is probably not a measure that lenders would recognise for security purposes, but is more a justification for the business development SAFFRON HOUSING TRUST LTD Provided the disclosures were clear Sentinel Housing Association Limited Will depend heavily on what additional disclosur eis required. Spectrum Housing Group As long as there is a consistent approach and there is the adequate disclosure to go alongside it. The Hyde Group It would be useful to have a practice note to encourage consistency across the sector Trafford Housing Trust Will the VIU-SP require a formal review involving a qualified valuer or can this exercise be undertaken in house? Page 7 of 39
Question 3: Would the use of a purely cash flow based estimate (ie value in use) in determining the recoverable amount of social housing properties provide more relevant and reliable information for users? Q3 (N=72) yes 21% no 69% don't know 10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Comments: Accent Group Ltd It would also improve comparability and reduce subjectivity. Adactus Housing Group Limited Clarity is required about social landlord/housing associations investing its own free cash (surpluses) into social housing properties such that the net investment is compared to the future cashflows under the value in use method Affinity Sutton As a sector we do not hold our assets solely for their cash generation, for example: i) the reason we are able to raise money at economic levels, and therefore can develop additional social housing, is by using our existing assets as collateral; ii) we do not look to maximise rents that we charge (for example we have capped rents for some homes at 65% rather than the 80% we are entitled to use); and iii) we spend large sums on major works which if we were looking to maximise net revenue we wouldn t (some of this is to meet the Decent Homes Standard which is not required in the commercial sector). A purely cash flow based estimate would be very misleading and is not relevant nor reliable. Arhag Houssing Association From the RSL perspective...reliable (yes), but more relevant (no). Asra Housing Group For the reasons given in paragraph 1.2 i.e properties held for their social benefit are not held solely for the cash flows they generate and are held for their service potential. For a traditional RP with housing stock it has held for a long time i.e. held at low cost, we do not foresee any problems. However there could be examples, probably with a newer RP, Page 8 of 39
where all the stock is impaired giving a cumulative aggregate total negative cashflow. It is for this reason that we think the aggregate cumulative should be disclosed where VIU-SP has been applied (Q10.) not just words (para 14.42). CHS Group The benefit provided by the provision of social housing is one that is not based on casdhflows it is one based on the saving across a number of different organisations based on SROI methodology. Circle Housing It is useful value to disclose but not on B/S Coastline Housing Ltd As per our response to the previous SORP consultation this approach could result in unacceptable impairment to assets in the sector. Derby Homes Ltd Such an approach would not recognise service value/social purpose nor the latent value on disposal of property East Thames Group This isn't why we invest in social housing properties so it doesn't to me make sense to use it. Eastlands Homes Partnership Limited This would not provide more relevant / reliable information - Social Housing is not solely cash-flow driven EMH Group Ltd Cash flow based estimates are not reflective of the price another social housing provider would be prepared to pay to acquire the asset First Wessex Whilst easier to calculate, this doesnt reflect the full value in use to Housing Associations of that asset Gateway Housing Association We are in business but with a social purpose and are not driven by pure cashflows. Value in use should include social potential Gentoo Group Impact on the level on which cash-generating units are determined. Currently have a low level of new build properties which within the pool of assets revalued has minimal impact and to date nil impact on p and l. However if we were to do a large scheme in one of our areas this could have a detrimental effect on new build subsidy and subsequent impairment assessment upon revaluation based on cash flows GREENSQUARE GROUP LTD However, the existing EUV-SH definition is already a cashflow based estimate so where does this leave those organisations using EUV-SH as the carrying value of Housing properties. There is a danger of severe inconsistency between those using historic cost and those at valuation. Harrogate Families Housing Association May be appropriate to use both Isos Housing Limited We would not want to be restricted to either VIU or VIU-SP. There is little benefit in choosing between them. livin Housing Ltd It would purely look at the Cash flows generated and not the service potential of an asset. Page 9 of 39
Longhurst Group Ltd The main users of the accounts that this would be useful for would already have information on the value of stock (based on cashflow) through loan security re-valuation reports. It should also be remembered that the full definition of EUV-SH is not limited to a cashflow based model. Look Ahead Care and Support for the reasons outlined above. Users of the financial statements comprise a number of different groups including lenders, customers, commissioners, regulators, staff and the general public. Lenders already require valuations over and above the historical cost information presented in many RPs accounts and government and regulators are able to draw on relevant detail through regulatory returns to assess solvency using forecast cash flows. The remaining users are likely to be interested in the service potential for public benefit represented by the RP s assets and therefore, in line with the ASB interpretation, it is appropriate that the potential for public benefit is reflected in the value in use calculation. Magna Housing Group Yes, becasue users would be able to see the true fiancial position of a HA - which is the point of a BS. Moat Homes Limited This would impact on our social purpose objective. Network Housing Group Ltd No, because a cash flow basis, VIU methodology, under states the value and a VIU -SP method more accurately reflects value. Notting Hill Housing Trust As stated in 14.18, this calculation should be applied prior to VIP-SP One Housing Group If a purely cash flow estimate is used to determine the recoverable amount of social housing properties it will be easier to understand. However the cash flow method will not reflect the service potential of the housing properties as it does not take into consideration future cash flows from future restructuring for which there is currently no commitment, enhancement or improving properties in the future or cash flows from financing activities or income tax. Origin Housing Limited We believe that VIU estimate would be more reliable than a VIU-SP however we recognise that such a methodology fails to recognise the under lying social purpose of the sector and thus provided adequate disclosure is made we believe that VIU-SP is an appropriate estimation basis. Paradigm Housing Association Ltd The SORP should follow FRS102 in providing an alternative model eg estimating fair value less costs to sell as there may be circumstances where this could be more appropriate (relevant). This is particulaly important as the types of property /scheme developed change. Restricting the option to a purely cash flow based estimate could prove short sighted in a rapidly changing environment, Radian Housing It may be more relevant for investors to ensure sufficient security SAFFRON HOUSING TRUST LTD It would be more transparent Selwood Housing This would fail to tak into account the social benefit of the asset which is central to its value to the owning housing association and its stakeholders Page 10 of 39
Sentinel Housing Association Limited Better basis for understanding long termstability of the business. More objective Southern Housing Group Pure VIU whilst recognising the cash impact of an asset on an organisation, does not reflect the uplift over and above the simple cash flow that is generated by the unit, and is recognised when trading takes place in social assets Spectrum Housing Group Due to the lack of flexibility Thames Valley Housing The use of a pure cash flow based estimate does not represent the intended use of a social property and inherent value of that use The Guinness Partnership Agree with the general approach that VIU-SP and fair value may be more appropriate The Hyde Group Yes, but we need to ensure we take into account service potential and other factors. Town & Country Housing Group We would favour flexibility to allow us to match the approach to the circumstances. Unity Housing Association Ltd does not appear to allow for the reasoning behind the social landlord's raison d'aitre WM Housing Group We consider that VIU-SP more realistically reflects the intentions of the RP and presents a clearer picture to the users of the financial statements. The use of a pure cashflow based estimate may be well suited to a for-profit organisation whose aims are the generation of profits to fund dividends, but is likely to present a misleading picture for the majority of Registered Providers whose social aims and intentions are very different. Your Housing Group It is not considered that this would reflect the nature of the sectors activities. Page 11 of 39
Question 4: Do you agree that depreciated replacement cost provides an appropriate measurement basis for assets held for their service potential? Q4 (N=70) yes 91% no 6% don't know 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Comments: Accent Group Ltd We welcome the flexibility, but please note our response to question 4 above. CHS Group The mechanism suggested does not equate to measure of calculating benefit it appears to be a suggested replacement. Circle Housing Yes but this is unlikely to be lower than Fair Value as measured by an RP to RP transaction so doesn't address the underlying concern of potentially under valuing assets. Eastlands Homes Partnership Limited It is an option but unsure if it is the most appropriate basis First Wessex Gives a fair approximation of the cost of bringing into use a comparable asset to deliver the same service benefit Gentoo Group Quality versus quantity and address other strategic objectives e.g. pv on roof to address fuel poverty Home Group Limited We believe that the use of Depreciated Replacement Cost to measure Value in Use (Service Potential) will ensure consistency of treatment across RPs which is welcomed. We note that the guidance as drafted (in section 14.28) allows other valuation bases to be used provided they are relevant. We believe this to be consistent with paragraphs 27.20A of FRS 102. In order to encourage consistency, we would therefore suggest that where a RP elects to use an alternative Page 12 of 39
method of assessing value in use from depreciated replacement cost that the nature of the alternative method and the rationale for using the method are fully disclosed. livin Housing Ltd Will assist with development aspirations. Longhurst Group Ltd Yes, in the absence of any other market based information DRC would be an appropriate basis to assess the service potential. Magna Housing Group Because I think that assets should be held at a realistic sales value. Network Housing Group Ltd DRC should be allowable, in particular in relation to supported housing where a market value for instance would understate value in use. Origin Housing Limited Subject to there being adequate disclosure. Your Housing Group It is considered that this method would allow a basis to assess costs by considering what it would cost to replace the asset. Question 4a: If not, what alternative measures would be more appropriate? CHS Group A proper SROI methodology needs to be evaluated and become a standard so that financial statements can avoild some possible inconsistencies. Eastlands Homes Partnership Limited Would need more detail of possible alternative measures that could be more appropriate and acceptable Gentoo Group What is the benefit of splitting up the cash-generating units? We can only see the downside of doing this. Will also be an administrative burden for no gain Home Group Limited As noted in our response to question 6, we support the use of depreciated replacement cost but where an alternative is used, this should be fully disclosed. Magna Housing Group A method which gives a fair market value of the assets Page 13 of 39
Question 5: Is there sufficient guidance in paragraphs 14.25 and 14.26 to explain the calculation of depreciated replacement cost? Q7 (N=70) yes 23% no 71% don't know 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Comments: Circle Housing 14.27 expressly restricts using depreciation charged to the I&E but it is unclear what the alternative is. This could be usefully clarified. Coastline Housing Ltd The guidance is not clear on what is meant by optimal conditions. For example, it would be expected that if in constructing the original asset there were additional costs incurred through poor project management, that this would not be reflected in the DRC. However, if there were abnormal costs associated with the site itself that could not be avoided, for example a need for under-pinning, then these should be reflected. In addition the guidance says that either lowest cost of construction or acquiring a replacement can be used. The definition is not clear as to whether this means that the lower of the two options should be used, or if there is a choice between the cost of constructing a replacement or acquiring a replacement. Acquiring a replacement could be interpreted to mean acquiring a similar asset from another RP. In this case the cost would be linked to EUV-SH, potentially at a premium of around 30%, which is likely to be lower than the cost of construction. Therefore if the definition means the lower of RPs are effectively being asked to use EUV-SH as a benchmark, which takes us back to the problems in the previous draft of the SORP. Eastlands Homes Partnership Limited See 9 below - worked examples would greatly help Gateway Housing Association A worked example is always useful Gentoo Group Subjective on the quality aspect of the cost. Could do with worked examples Page 14 of 39
Home Group Limited In deriving depreciated replacement cost, an RP should consider three bases: - Construction of a new, equivalent property - Purchase of an equivalent property on the open market - Purchase of an equivalent property from another RP who is a willing seller Whilst we are confident that a robust, evidence based assessment could be made in the majority of cases for the first two bases, we do not believe that the third bases can be reliably assessed as it is based on the premise that there is another RP operating in the same area with equivalent properties that it is willing to sell. Whilst a number of sales have taken place between RPs, this occurs on a case by case basis and is by no means the norm. Therefore in the majority of cases, the third basis cannot be reliably assessed and as a result we do not feel it should form part of the assessment of depreciated replacement. We note that the guidance stresses that depreciated replacement cost should include an assessment of the lowest cost of replacement of a property. Whilst we agree with this sentiment, we feel it should be stressed that the assessment may allow for the inclusion of the cost of providing enhancements which benefit the tenants (e.g. energy efficient measures) where these exist in the original asset. We would however agree that the assessment should not be unreasonably inflated by including unnecessary costs which do not in themselves deliver service potential. Isos Housing Limited 14.25 and 14.26 gives sufficient guidance; however in our opinion 14.27 contradicts the above paragraphs and further explanation is required. Look Ahead Care and Support 14.25 could explain how unamortized grant is to be treated when calculating DRC as at present the NPV of cash flows method is net of grant repayment whereas grant is not addressed in the DRC definition and appears to be excluded. This could be made explicit. Origin Housing Limited The wording is sparse but as the calculation of a depreciated replacement cost is inevitably going to result in a significant subjective and technical judgements being made we don't believe a worked example would provide greater clarity. Radian Housing some is quite subjective and open to interpretation, but will always be so. Spectrum Housing Group It is too brief The Hyde Group It is not clear how you would arrive at this information and what would be accepted by auditors. We would need to look at average data which may be hard to ascertain and could be subject to manipulation. Your Housing Group We are satisfied with the definition provided. Page 15 of 39
Question 5a: If not, would the inclusion of worked examples be of assistance in applying this guidance? 21 organisations agreed that the inclusion of worked examples would be of assistance in applying this guidance. Additional comments: Accent Group Ltd Worked examples always help preparers of accounts and we would welcome them. City West Housing Trust Yes, additional guidance would be helpful. Coastline Housing Ltd Worked examples are not necessary providing the wording is clear and unambiguous. Eastlands Homes Partnership Limited Yes, worked examples would greatly help to apply the guidance to our own circumstances. First Wessex Overall the guidance is sufficient to be able to make an assessment however a worked example would definitely aid the understanding as part of implementation GREENSQUARE GROUP LTD Yes worked examples would be very helpful and provide further clarity and guidance. Harrogate Families Housing Association More worked examples would help. Home Group Limited Yes, we believe that the guidance could be significantly enhanced by the inclusion of examples including figures which illustrate practical examples of application of the guidance. Orbit Group Yes, it would be useful to include example(s) of impairment with the application of VIU-SP i.e. depreciated replacement cost and how calculated. Paradigm Housing Association Ltd No Radian Housing Yes, some people learn better when given worked examples Shropshire Rural Housing Association Worked examples are always a useful refence tool. Spectrum Housing Group Yes with an emphasis on depreciation calculations referred to in 14.27 Thames Valley Housing Worked examples would aid users but the guidance is sufficient Page 16 of 39
WM Housing Group Whilst the guidance in paragraphs 14.25 and 14.26 is clear, worked examples would serve to highlight the potential issues to consider in respect of replacement of the land, and would be beneficial. Your Housing Group Whilst we are satisfied with the definition, it is expected that over time custom and practice will develop. It would be useful to give a worked example to assist preparers of financial statements and avoid any potential confusion. Page 17 of 39
Question 6: Are the disclosure requirements of paragraph 14.42 sufficient? If not, what further disclosures are required? Q6 (N=70) yes 81% no 10% don't know 9% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Comments: Asra Housing Group Disclosures should include the total amount VIU-SP was applied to. i.e. of 500m cost of assets if impairment indicators are identified on 10m, this 10m is then assessed for VIU-SP. This is different to say 400m showing impairment indicators! Bromford Group This should be included as part of the accounting policies note Circle Housing Yes, whilst a more proscriptive approach would offer more comparability, this benefit would be offset by the commercial sensitivity of the data, for example discount rates. Coastline Housing Ltd It would be useful to make clear whether what is required is a general note in the accounting policies disclosure that sets out the approach taken, or a specific note related to the assets where impairment has been considered. If it is intended to be a specific note detailing specific consideration of impairment of individual assets or groups of assets this should be made clear. Eastlands Homes Partnership Limited The disclosure requirements set out in 14.42 are what a reader of the accounts would expect to see Gentoo Group Guidance on key assumptions would be useful as we will all do this differently Page 18 of 39
Harrogate Families Housing Association Difficult to answer until we have tried. Helena Partnerships Ltd If VIU-SP is used a cash flow valuation should also be disclosed Isos Housing Limited There are possibly too many requirements, in particular, including VIU-SP may cause confusion. Origin Housing Limited See response to Question 11. Sovereign Housing Association a. It would seem appropriate to disclose which schemes/properties have been considered for impairment, what the impairment triggers were and which schemes/properties have been written down as a result of the reviews. b. Does the disclosure suggested in 14.42 really give any useful information to the reader of accounts? We are unconvinced. Your Housing Group We are satisfied with the minimum disclosure requirements. Page 19 of 39
Question 7: Should a social landlord be required to disclose the value in use of a cashgenerating unit if it chooses to use the VIU SP estimation technique in performing an impairment assessment? Q7 (N=70) yes 23% no 71% don't know 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Comments: Accent Group Ltd We are unclear how this would aid the users understanding of the accounts. More a matter for the Board and Auditors. Affinity Sutton Being required to show the value in use (ie a purely cash flow based estimate) is unhelpful and completely misses the point that VIU-SP is an appropriate measure. Either there is an impairment or there isn t. You could use the same logic for all accounting policy decisions, for example, what s the impact of depreciating units of a shorter time scale or what s the impact of using valuation accounting rather than cost? Being required to show in the accounts the impact of using a different valuation method is frankly ridiculous. Arhag Houssing Association to comply with the SORP Coastline Housing Ltd Providing sufficient disclosure is giving regarding accounting policies, it would seem unusual to have to disclose the workings that have resulted in a decision not to impair an asset. Derby Homes Ltd Such a disclosure would not add value to the understanding of the accounts Eastlands Homes Partnership Limited Page 20 of 39
If they don't disclose detail at this level, how can the reader properly judge the assessment? and disclosure / resultant length of accounts could be an issue. Resulting level of detail EMH Group Ltd Providing to much detail on the estimation technique used will lead to further confusion for the readers of the accounts. First Wessex the requirment in 14.42 should be sufficient disclosure to enable understanding. Gateway Housing Association I think the Financial Statements should set out the principles. If individual values are disclosed this could be a long list depending on the number of cash generating units and possibly commercially sensitive Halton Housing Trust This should be open to the Landlord as an option Isos Housing Limited If VIU-SP is the measure of valuation then, in our opinion, there is no need to disclose the value in use. livin Housing Ltd Not required under FRS 102 and would potentially confuse readers of accounts. Longhurst Group Ltd This would be too confusing for the users of the accounts. EUV-SH is more than just a cashflow based valuation. The users of the accounts who will be interested in a cashflow based valuation already receive that information through loan security reports. Requiring this information to be published in the accounts could increase costs for very little benefit. Look Ahead Care and Support The draft SORP notes that in 14.18 as a practical expedient a social landlord may estimate VIU based on future cash flows if the result gives no impairment loss. In this case there would be no VIU-SP estimated. In other cases VIU-SP may be a simpler calculation or may have been estimated for other purposes. In addition the option is open to RPs to use a technique similar but not identical to VIU-SP which would then not fall under this disclosure. Because the estimation technique for value in use is not prescribed by the SORP, disclosing VIU calculated solely using the VIU-SP method does not provide meaningful information to users of the accounts. Magna Housing Group Yes, why not. What is it trying to hide? Network Housing Group Ltd If the social landlord uses VIU-SP as the valuation basis then that basis stands in its won right and requires no further comparator, as long as appropriate disclosures are made. If one was to include a comparator, such as VIU, this would only confuse the reader of the accounts, disclosing a method that was not used for accounting policy. One Housing Group Disclosure would enable users to better understand the sector accounts. This disclosure would only be relevant/useful if the method used to calculate the VIU-SP is consistent through out the sector. Orbit Group This has the potential to be confusing to a reader of the accounts by including alternative valuations for the same asset(s) Page 21 of 39
Origin Housing Limited In our view the social landlord should disclose what the impairment charge would have been had a value in use methodology been used rather than a VIU-SP methodology rather than disclosing the value in use. Paradigm Housing Association Ltd In my view this would be too much detail for inclusion in statutory accounts. Key issue for reader is: has there been impairment? Detail of calculation not necessary to meet this requirement. Plymouth Community Homes unnecessary to do 2 lengthy calculations with no additional benefit Radian Housing Disclosure of impairment basis would be appropriate. Sentinel Housing Association Limited Draws attention to the weakness in yhe process,creates more work and allows reader to make own judgement. However from a purely technical accounting view probably should be "yes" Spectrum Housing Group It would probably be useful from an auditors perspective and depending on the level of materiality then additional disclosure may be required The Guinness Partnership Extent of use is considered sufficient. Funders have their own valuation requirements for secured assets. The Hyde Group This question is unclear. Are we asking if we should disclose the value in use of each asset impaired? We don't think this is necessary if the methodology for calculating VIU-SP has been made clear. Town & Country Housing Group This would be too much detail to include in the financial statements, especially were events to result in a large number of impairments being required. Surely the users of the statements could rely upon the auditors to have considered the detail as part of their work, in the same way that they rely on other aspects of the auditor's work. Trafford Housing Trust There is still additional clarity required in respect of how the definition of a 'cash generating unit' is to be applied. initial guidance suggests that this would be on a scheme-by-scheme basis. However, we would welcome further guidance as to whether there is further scope to expand / interpret this? The Triangle Housing Association Ltd Probably Unity Housing Association Ltd Too much information at scheme level would probably not be very useful WM Housing Group We do not consider that disclosing the value in use of a cash generating unit will add to the understanding for the user of the accounts. Your Housing Group We would expect that associations may choose to provide additional disclosures on this to ensure that readers of financial statements understand the basis of preparation. However, we would suggest that this should be at the association s discretion. Page 22 of 39
Question 8: Is the redrafted impairment section sufficiently clear that an impairment assessment is only required where there is an indicator of impairment? Q8 (N=70) yes 91% no 4% don't know 4% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Comments: Accent Group Ltd We consider there is a fundamental difference between impairment (i.e. where an event reduces the value of an asset) and the difference between a development s actual cost and the anticipated cash rental stream. The latter is known / can be estimated at the start of a project. The former is an unknown event. Bromford Group Any material detrimental impact of government policy will be different for each association; materiality is different for each association Eastlands Homes Partnership Limited Guidance / approach required makes sense Magna Housing Group Does this mean that HAs wont have to impair if they decided to go ahead with a loss making scheme, nowing it would be loss making. This should not be allowed. The loss making amounts ('social value') should be charged to the I&E as impairment. If it was a concious decision to subsidise a loss making scheme, why not show the subsidy. What is there to hide? By not showing it, and reporitng the full profit from units so-called cross-subsiding the units is taking the benefit twice, once with an overvalued asset and second with overstated profit. Network Housing Group Ltd The examples require more detail and should be more appropriate to a social landlord who is developing. Origin Housing Limited Page 23 of 39
Clarity could be further improved by including the sentance; "Where there is no indicator of impairment no impairment assessment need be performed." Town & Country Housing Group It may still be hel;pful to explicitly state that it is expected that in most cases an indicator will not exist. Question 8a: If not, what further information is required? Accent Group Ltd None Gateway Housing Association I think the SORP would be easier to follow if it contained all the relevant FRS102 text within the document as with the current SORP. This would reduce issues around applicability of paragraphs in FRS102 not specifically referred to. L&Q Housing Trust The definition of material is subjective. Longhurst Group Ltd As per comment on Q12 SAFFRON HOUSING TRUST LTD It would be clarer if the following was added at the end of the first sentence of 14.4 ',if no indication exists the asset is not impaired'. Trafford Housing Trust Clarity may be required where there is cross subsidy for developments funded from within the organisation. e.g. the Trust has demolished 4 multi storey blocks and undertaken significant improvement works to other blocks, which have been subsidised by the Trust. York Housing Association More detailed clarification and examples. Page 24 of 39
Question 9: Does the section setting out the indicators of impairments provide sufficient guidance to social landlords to understand when there may be an indicator necessitating an impairment assessment? Q9 (N=70) yes 93% no 4% don't know 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Comments: Arhag Houssing Association the material indicators guidance supplied are sufficient steer. Eastlands Homes Partnership Limited Guidance and examples make sense Gentoo Group We would like more guidance of this in respect of annual revaluations and impact splitting out cash generating units Halton Housing Trust Implementation mat drive a need for further guidance L&Q Housing Trust The change in rent regime policy is a cause for concern. Emphasis should be that the trigger should be based on material changes from the original planned approval. Material being one thta would have changed the decision making as to whether to proceed or not. Network Housing Group Ltd Example calculations would be helpful to the reader of teh revised SORP. Origin Housing Limited It is impossible to anticipate all the potential factors tht may lead to an impairment of a property and in our view the examples provided are sufficiently comprehensive to provide the guidance likely to be needed. Page 25 of 39
Radian Housing thi should be in line with current accounting practise SAFFRON HOUSING TRUST LTD Cannot think of any other general examples Accent Group Ltd None Question 9a: If not, what further guidance is considered necessary / useful? Circle Housing A clarification of 'material' would be welcome and whether this is on a scheme or aggregate level. For example, switching tenure for one unit post-approval would appear non-material but on a scheme of 5 units maybe. Home Group Limited Whilst the impairment triggers included in the revised guidance provide a useful aide memoire, they should not be considered to be an exhaustive list and an RP should consider its knowledge of its asset base in the round in determining whether there is an indicator of impairment Trafford Housing Trust Whilst the example is useful, we feel that an example that was in relation to the housing sector as opposed to transport would have provided greater clarity. Page 26 of 39
Question 10: Do you agree with the guidance set out in this draft section of the SORP for determining cash generating units? Q10 (N=70) yes 89% no 10% don't know 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Comments: Accent Group Ltd Flexibility to define a cash generating unit as scheme level feels very appropriate. Asra Housing Group The examples given are helpful Bromford Group This is something that will need to be agreed with the auditors Coastline Housing Ltd The acknowledgement that schemes are approved as part of development programmes, where some schemes perform better financially than others, is welcome. However the example does not specifically make reference to the crosssubsidy that is inherent to make development programmes financially viable, for example from disposal of assets and relets at affordable rent. Eastlands Homes Partnership Limited Possible risk of inconsistency of approach due to judgements Home Group Limited Paragraph 14.12 recognises that it is possible that the level at which a cash generating unit is determined might change over time. Within the examples, it is noted that this may be the case when a scheme moves from development into management. We feel it would provide clarity if the examples were extended to illustrate how the level of a cash generating unit might change and the implications for assessing impairment - for example by extending example 1 to show a scheme within the overall development programme which subsequently has an indicator of impairment once it Page 27 of 39
is in management and how at that point the scheme must be considered individually and not with reference back to the wider development programme. Longhurst Group Ltd The first example at 14.34 provides sufficient detail, should more of this be included in the main body of the text on cash generating units? Magna Housing Group The sector should look at units in as much detail as possible. Such as scheme level. The date that HAs have had to collect to do componant accounting should make this fairly simple Network Housing Group Ltd Commentary is not specific enough to clearly define a CGU. For instance it could be a scheme, or a line of business such as Private sector leasing or older persons or a geographic split where for instance a remote Private retirement scheme is located remotely from the remainder of the stock. Origin Housing Limited We believe that the SORP working party is right to set out principles rather than provide more proscriptive guidance. However, we believe that greater clarity needs to be provided on profit recognition on market and shared ownership sales within a cash generating unit which contains social housing that is being developed using cross subsidy from these profits. Radian Housing This may be easier to look at expected return, whether VIU-SP, WIU, EUV etc., depending on class of asset, rather than a mixed group, although this approach may work for mixed development decisions, this should be able to be sub divided to single units and to understand mix in total and impact on I&E SAFFRON HOUSING TRUST LTD I interpret the guidance as allowing the whole of LSVT transferred stock to be classified as one cash-generating unit, it may be useful to include this in the guidance Spectrum Housing Group It would be useful to have a further housing example. Particularly an example of the valid treatment of a mixed tenure scheme. Also some guidance where a scheme includes open market sales could the whole scheme be impaired if the open market sales go down in value. Also does management arrangements come into consideration? The Guinness Partnership The comment about how management monitors operations could be taken to contradict the largely independent principle. Unity Housing Association Ltd Each HA needs to make its own assessment of what a CGU is as we all generally operate in different environments with different market factors affecting day to day operations Your Housing Group Cash generating units should be consistent with how management decisions are made and how the business is operated. As noted previously, this may require more documentation to support decisions made, though this is considered to be achievable. Page 28 of 39
Question 10a: If not, why? Bracknell Forest Homes I think we should avoid pooling of all assets to cover loss making investments. Bromford Group More examples would be beneficial Gentoo Group Can't see the benefit of splitting out the pool of assets. Much more work and will expose charges to the p and l and could restrict future developments in particular areas versus a pooled approach. Longhurst Group Ltd See comment to Q16 The Hyde Group There is a risk that given we have individual rental income streams we will be required by the auditors to look at this on a unit by unit basis. This is impractical particularly when trying to assess management costs and maintenance costs. Clarification on this point would therefore be appreciated. Trafford Housing Trust There is still additional clarity required in respect of how the definition of a cash generating asset is to be applied. The initial guidance suggests that this would be on a scheme-by-scheme basis. However, we would welcome further clarity as to whether there is further scope to expand / interpret this. WM Housing Group We consider that simply providing general principles and relying on the judgement of individuals to determine the level at which cash-generating units are set will lead to inconsistency within the sector. We would prefer a more explicit approach within the SORP, stating at what level a CGU would normally be determined. Page 29 of 39
Question 11: Is there sufficient guidance included within the SORP to enable social landlords to determine cash generating units within their individual business? Q11 (N=70) yes 81% no 13% don't know 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Comments: Arhag Houssing Association Yes, in terms of the principle. No in terms of ensuring consistency across the sector. However it is recognised that this is the best approach due to the sector complexities. Coastline Housing Ltd Yes, subject to comments in question 16 on cross-subsidy East Thames Group I don't think a more prescriptive approach is practical so have said yes on the basis of pragmatism - and the overall intent that lies behind the proposals. Eastlands Homes Partnership Limited Determination inherently would be very judgemental EMH Group Ltd Cash generating units are likley to differ significantly bewteen different organisations. A more prescriptive approach is not therefore possible. Great Places Housing Group Cash generating units can be easily identified in terms of housing "schemes" or "estates" but it is hard to see what the CGU might be for pepperpotted properties spread across several local authority areas. Individual properties is too small but an artificial conglomeration of lots of dispersed homes is equally unhelpful. Network Housing Group Ltd Page 30 of 39
CGU is not clearly defined. Examples would be helpful. Origin Housing Limited We believe that the provision of additional guidance might have the unintended effect of the SORP becoming unduly restrictive. In addition more detailed guidance would run a greater risk of becoming outdated due to changes in the grant funding regime and/or regulatory changes. Radian Housing This may be too vague, as cash generating units cou;d range from singe units to whole LSVT or ALMO. SAFFRON HOUSING TRUST LTD 14.3.4 Example 1 is very clear along with the definition in the glossary The Guinness Partnership Agree that this needs to be a matter of judgement conforming to a general principle. WM Housing Group We do not consider that the guidance is sufficient. Under the current drafting, the SORP says that we should consider factors such as how management monitor business activities, for example by regional areas, location of properties, type of activity. Consider a case of a group structured so that each regional area is managed within a separate legal entity, and that is how the group monitors its business activities and reports performance to Management and Boards. This would seem to indicate that the group could therefore claim that the cash generating units might be by each type of activity (e.g. general needs, intermediate rent, shared ownership, etc) at legal entity level. This would not appear to contravene the final sentence in paragraph 14.10, but may not be what the SORP intended. Question 11a: If not, what additional guidance is required? Accent Group Ltd None Eastlands Homes Partnership Limited Unsure what additional guidance could be provided - perhaps more worked examples?? Gentoo Group Benefits and reasons why we should not take a pooled approach GREENSQUARE GROUP LTD Clear examples such as classes of asset e.g. General Needs, Market Rent. Isos Housing Limited We consider that no additional guidance is required. Network Housing Group Ltd Examples of CGU required. Spectrum Housing Group More guidance on mixed tenure schemes. Which is the overiding consideration - the development project appraisal or management of the scheme? The Hyde Group Page 31 of 39
It would be useful to have detail of what the acceptable minimum level of cash generating unit would be. Town & Country Housing Group Perhaps it should be made clear that some grouping is appropriate; our fear is that the wording could be interpreted as suggesting individual dwellings (whilst we recognise it is not mpossible this will be the case, as in example three, it should not be the norm. WM Housing Group We would like to see examples of what would and would not be considered appropriate as determination of cash generating units for a medium-sized social landlord. For very small associations with a limited range of activities, we consider that it could be very likely that a CGU might be all of a social landlord s social housing properties. We consider that further guidance is required, and that examples need to consider the impact for small social landlords and those who do not have a significant development programme. Page 32 of 39
Question 12: Do you agree that value in use should be available to a social landlord as a method of measuring recoverable amount for the purposes of impairment? Q12 (N=70) yes 94% no 3% don't know 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Comments: Accent Group Ltd a useful initial test. Asra Housing Group See comments under Q10. the aggregate cumulative should be disclosed where you have used VIU SP Bromford Group We consider VIU should either be rebuild cost of an equivalent property type in the area or purchase price from the open market of an equivalent property. We would not consider entering into a deal with another HA to replace a property at EUV-SH as an appropriate valuation as there is no additional supply in social housing just an exchange between landlords Coastline Housing Ltd Yes, although the recoverable value calculation should acknowledge that assets transfer between landlords at a premium to EUV-SH. Eastlands Homes Partnership Limited A good starting point / reference point of any review livin Housing Ltd Offers a practical solution Network Housing Group Ltd Page 33 of 39