Consultation outcome

Consultation response: changes to DHSC group accounting manual 2026 to 2027

Updated 2 June 2026

All bodies within the Department of Health and Social Care (DHSC) accounting boundary (DHSC group bodies) must publish annual reports and accounts. Clear and transparent reporting helps the entity, as well as the users of the entity’s annual report and accounts, understand and scrutinise activities and outcomes.

DHSC and NHS England have powers to direct the:

• form in which the annual report and accounts should be prepared
• information that should be included
• methods and principles that should be followed in their preparation

In determining the form and content of the accounts, we must, by statute, aim to ensure the accounts present a true and fair view.

To achieve this, DHSC issues a group-wide manual every year, the group accounting manual (GAM), containing the requirements DHSC group bodies need to follow when preparing their annual reports and accounts.

The NHS foundation trust annual reporting manual (FT ARM) establishes the annual reporting requirements for NHS foundation trusts. The FT ARM contains the formal accounts direction, but foundation trusts will follow the GAM for accounts requirements.

The GAM requires DHSC group bodies to follow the requirements of international financial reporting standards (IFRS), as adopted by the United Kingdom and interpreted and adapted by HM Treasury’s financial reporting manual (FReM).

Therefore, the GAM only includes detailed accounting guidance where DHSC group bodies are one of the following:

• required to depart from IFRS or the FReM
• required to make specific disclosures in addition to IFRS and the FReM
• faced with particular circumstances that IFRS or the FReM do not address

Updates to the GAM follow the same principle and, on that basis, are required where IFRS or the FReM have changed, or when DHSC group bodies are required to make specific extra disclosures.

Some content for the 2026 to 2027 GAM is not yet available, such as HM Treasury discount rates. The GAM indicates where this is the case, and the manual will be revised later in the year once this content is known. An additional guidance document published alongside subsequent updates of the 2026 to 2027 GAM will signpost the changes made within the manual.

Background to this consultation

This consultation related to the draft GAM for the 2026 to 2027 financial year. The consultation ran from 26 January 2026 to 23 February 2026. Following the consultation period, the revised GAM has been subject to further assessment by the Financial Reporting Advisory Board (FRAB) to clear the final draft for publication.

Feedback has been received from the user and audit community as well as technical experts, which has helped to inform and enhance the development of the 2026 to 2027 GAM. The following sections of this document summarise the technical question posed, responses received and DHSC’s decisions.

Following this consultation and after consideration by FRAB, the 2026 to 2027 GAM will be published in June 2026.

Consultation questions and responses

Change to the classification, valuation cycles and valuation methodologies of PPE

HM Treasury’s thematic review has proposed changes to the classification, valuation cycles and valuation methodologies of property, plant and equipment (PPE) accounted for under international account standard (IAS) 16.

In relation to classification, changes introduced in the 2025 to 2026 FReM removed the distinction between specialised and non-specialised assets held for their service potential and reclassified these assets using terminology aligned to international public sector accounting standards, as assets held for their operational capacity. This approach was embedded in the FReM and reflected consistently within the GAM.

In respect of valuation cycles, the review proposed mandating a specific approach, either undertaken as a single revaluation every 5 years or through a rolling programme of valuations over a 5-year cycle, with indexation applied in the intervening years.

For non-property assets, appropriate indices are to be applied as the basis for valuation and entities may determine the most appropriate index to apply. DHSC and NHS England are considering whether centrally procured indices could be made available to support consistency across DHSC group bodies.

These proposals were positively received through consultation and endorsed by FRAB and were incorporated into the 2025 to 2026 FReM.

For 2026 to 2027, DHSC aligned the GAM with this FReM position on valuation cycles. This removes the previous divergence whereby the GAM retained earlier valuation cycle guidance pending wider agreement on valuation methodology changes. Under this proposal, NHS bodies following the GAM would be expected to apply the FReM valuation cycle approach for PPE accounted for under IAS 16.

In relation to valuation methodologies, FRAB has now reached conclusions on the outstanding issues that were not resolved at the point the 2025 to 2026 FReM was finalised. In particular, FRAB has concluded that, where land is integral to specialised operational capacity assets, the land element should be valued on a basis consistent with the modern equivalent asset (MEA) approach applied to the associated buildings under a depreciated replacement cost (DRC) methodology.

FRAB has also confirmed its endorsement of the removal of ‘alternative site’ valuation from MEA approach under DRC methodology, with implementation to take effect from 2028 to 2029. This provides clarity on the end-state valuation methodology for PPE held for operational capacity and allows entities to plan for transition away from alternative site assumptions.

As a result of these conclusions, DHSC considers that the conditions are now in place to:

• align fully with the FReM valuation cycle requirements for IAS 16 PPE
• update GAM guidance to reflect the FRAB conclusion that land integral to specialised operational capacity assets is valued on a basis consistent with DRC and MEA

DHSC recognises that these changes may have material impacts for some NHS bodies, particularly in respect of estate valuations and financial planning. However, we consider that aligning the GAM with the now settled FReM position and providing clearer expectations ahead of the 2028 to 2029 change will reduce uncertainty and implementation risk compared with further deferral.

Consultation questions on the changes stemming from non-investment asset review

Question: do you have any comments on the proposal to align the GAM with HM Treasury’s FReM valuation cycle requirements for PPE accounted for under IAS 16 from 2026 to 2027?

Respondents generally supported aligning the GAM with the FReM valuation cycle requirements for PPE accounted for under IAS 16. Respondents acknowledged that greater alignment across the public sector would improve consistency, comparability and Whole of Government Accounts consolidation.

However, respondents raised a number of practical and operational concerns, particularly regarding the impact of the revised valuation approach on asset values, depreciation and public dividend capital (PDC) dividend charges.

Some respondents requested clearer guidance on:

• the timing of quinquennial valuations
• the application of indexation to non-property assets
• and the interaction between indexation, impairment assessments and out-of-cycle valuations

There was also strong support for centrally available indices to support consistent application of the revised valuation approach and reduce local implementation and audit burden. Respondents further requested additional clarification regarding:

• the future removal of alternative site valuations
• the treatment of subsequent capital expenditure
• the valuation of land integral to specialised operational capacity assets under an MEA and depreciated replacement cost basis

DHSC decision

DHSC has concluded that the GAM will be aligned with HM Treasury’s FReM valuation cycle requirements for PPE under IAS 16, and the proposal will be implemented as set out in the consultation.

DHSC has also concluded that group bodies may determine their own valuation cycle provided that valuations are undertaken at least once every 5 years in accordance with the FReM requirements. DHSC and NHS England are exploring options to support consistent implementation through centrally available indices.

DHSC acknowledges the concerns raised regarding the impact on depreciation and PDC dividend charges. These impacts arise from the application of FReM requirements and wider funding arrangements and therefore do not result in changes to the GAM.

DHSC reviewed the GAM guidance and further clarified the guidance regarding the subsequent capital expenditure and out-of-cycle valuations as well as impairment assessments.

Question: do you have any other comments regarding the guidance in the GAM relating to PPE and the outputs from the non-investment asset review?

Respondents were generally supportive of the PPE guidance and the outputs from the non‑investment asset review, noting that the overall direction improves consistency and alignment with the FReM. However, several areas were identified where further clarification would support consistent implementation.

In particular, respondents suggested that clearer guidance would be helpful on the planned removal of alternative site valuations in 2028 to 2029, including how organisations should approach the use of this basis during the transition period and in advance of its removal.

Respondents also requested additional clarity on the application of indexation, particularly in relation to capital expenditure incurred outside the 5‑year valuation cycle and how this interacts with subsequent valuation and impairment considerations.

More broadly, respondents identified areas where further explanation would improve consistency in practice, including how indexation should be applied and the treatment of subsequent capital expenditure. There were also requests for greater clarity on the application of valuation methodologies for specialised assets, including the treatment of land integral to operational assets.

DHSC decision

DHSC will retain the proposed PPE guidance and outputs from the non‑investment asset review, while making targeted clarifications to support consistent application. This includes reviewing the existing guidance and clarifying it, where necessary, in relation to the treatment of subsequent capital expenditure.

DHSC will consider whether further clarification is needed in the GAM regarding the transition to the removal of alternative site valuation assumptions and the related guidance.

DHSC and NHS England are exploring options to support consistent application of indexation, including the potential provision of centrally available indices and, where appropriate, further guidance on their use.

Change to accounting for gains and losses on absorption

Following updates to the FReM, the treatment of gains or losses arising from transfers under absorption accounting has been revised. Previously, such gains or losses were recorded as non-operating items through net expenditure.

From 2026 to 2027, in line with the updated FReM, the GAM mandates that gains or losses arising from absorption accounting should be recorded directly in reserves, rather than through net expenditure. Revaluation reserves should be transferred in full, with any remaining balance transferred to the general fund (or equivalent component of equity).

This change reflects the view of the technical working group and HM Treasury that gains or losses on absorption are non-operating in nature and do not represent income or expenditure. Recording these amounts in reserves provides a more accurate reflection of their nature.

Consequently, following the update to the GAM, which now requires all gains or losses arising from absorption accounting to be recorded directly in reserves, the previous guidance on modified absorption accounting is no longer applicable. The standardised approach in the revised FReM supersedes the need for a separate modified absorption method, and the relevant paragraphs will be withdrawn from the 2026 to 2027 GAM.

Consultation question on the change to accounting for gains or losses on absorption

Question: please explain whether or not you support including the change that gains or losses arising from absorption accounting should be recorded directly in reserves rather than income and expenditure in the 2026 to 2027 GAM.

Respondents were broadly supportive of the proposed change to record gains and losses arising from absorption accounting directly in reserves rather than in income and expenditure. Several respondents agreed that this treatment better reflects the economic substance of absorption transactions as non‑operating, within‑government restructures, and avoids distorting reported financial performance. This was considered to improve consistency with the FReM and enhance comparability between organisations.

One respondent sought clarification on whether the change should be applied retrospectively, including whether prior period adjustments would be required where absorption gains or losses were previously recognised in income and expenditure.

DHSC decision

DHSC will implement the proposed change to recognise gains and losses arising from absorption accounting directly in reserves in the 2026 to 2027 GAM. The change will be applied prospectively and will not require prior period adjustments. DHSC will review the drafting of the relevant guidance where necessary to ensure clarity and consistent application.

Consultation questions on other changes made to the GAM

Question: if you have any other general comments on the GAM, please provide them.

Respondents provided a range of general comments on the GAM, covering both specific technical issues and broader usability considerations.

One respondent raised concerns about the complexity of remuneration disclosures, noting that the guidance on fair pay reporting is detailed and difficult to interpret, creating a disproportionate burden for preparers and auditors.

Respondents said they still find it difficult to apply the Task Force on Climate-related Financial Disclosures (TCFD) requirements in practice, and suggested that more guidance or practical examples would help those preparing disclosures. A separate comment queried the location of TCFD disclosures and the interaction between the GAM and FReM, particularly in relation to the use of cross-referencing to external documents.

One respondent drew attention to the IFRS 9 amendment relating to the derecognition of financial liabilities settled by electronic payment systems and suggested that referencing this amendment in the GAM would support consistent application and could have implications for bank reconciliation processes.

Another respondent suggested that the GAM could include additional reporting requirements on small and medium-sized enterprises (SME) and voluntary sector expenditure to support wider government transparency objectives.

More broadly, respondents were positive about the structure and clarity of the GAM, noting that it is generally well organised and accessible. Suggestions for further enhancement included improved signposting of important changes and continued use of FAQs and worked examples to support interpretation and implementation.

DHSC decision

DHSC will retain the overall structure and content of the GAM while making targeted improvements where appropriate.

DHSC will review the comments regarding the complexity of remuneration disclosures and consider whether amendments to the guidance are warranted as part of in-year updates to the GAM.

DHSC notes the comments on TCFD disclosures and will consider whether additional guidance or illustrative examples would assist preparers. The GAM will continue to reflect that core disclosures are expected to be included within the annual report and accounts, with cross-referencing used where appropriate.

DHSC will consider whether to reflect the IFRS 9 amendment on the derecognition of financial liabilities within the GAM, potentially as an in-year update.

DHSC will also consider the suggestion regarding reporting of SME and voluntary sector expenditure and whether additional requirements would be appropriate.

Consultation questions on the prospective change to the GAM

Removal of alternative sites from PPE valuations

For DHSC group bodies, valuation assumptions must be consistent with service delivery requirements and the locational requirements of the service being provided.

Entities should note that the FReM position is looking to remove ‘alternative site’ valuation from DRC and MEA methodologies from financial year 2028 to 2029. The GAM will reflect this change without the option for an early adoption.

Question: if you have any comments on the removal of alternative sites from PPE valuations in 2028 to 2029, please provide them.

Respondents were supportive of the removal of alternative site assumptions from PPE valuations from 2028 to 2029, noting that this would improve alignment with IAS 16 principles and better reflect the service potential of assets in their existing use. However, several respondents highlighted that the change is likely to result in increases in reported asset values, particularly for large or operationally constrained sites, with consequential impacts on depreciation and PDC dividend charges. Respondents therefore emphasised the need to understand and manage the financial and operational implications of the change and welcomed the lead‑in period to allow organisations time to plan for implementation.

DHSC decision

DHSC notes the comments received regarding both the conceptual merits of the proposal and the potential financial and operational impacts.

The removal of alternative site assumptions from PPE valuations from 2028 to 2029 will be implemented as set out in the consultation. Matters relating to funding implications fall outside the scope of the GAM and do not result in changes to the guidance.

Conclusion to the consultation

DHSC is grateful to all respondents for their thoughtful and constructive feedback on the 2026 to 2027 GAM consultation. This input has been carefully considered and has informed a number of targeted updates to the manual.

In reviewing the responses, DHSC has sought to ensure that the GAM provides guidance that is clear, robust and sufficient to support consistent application across the group, while avoiding unnecessary complexity or over‑prescription. In several areas, comments have been noted but the existing guidance has been retained where it is considered appropriate and proportionate.

The feedback received has also highlighted a number of areas where further clarification, supporting material or future development may be beneficial. These have been taken forward for consideration in additional in‑year guidance updates and in the development of the 2027 to 2028 GAM, which will be subject to further consultation in early 2027.

DHSC would like to thank all respondents for their contribution to the development of the GAM and for supporting high‑quality, consistent financial reporting across the group. The resulting manual has been approved by FRAB.