The Education and Skills Funding Agency (ESFA) has published its Academies Accounts Direction (AAD) 2018-19, which is applicable to academy trusts preparing statutory financial statements for the period ending 31 August 2019. There have been a number of changes in this edition, plus some reminders of the key issues you should be considering.
Timetable for submission
The submission timetable has remained the same at four months after the accounting period end. This will be the 31 December 2019 for the majority of academy trusts with a 31 August 2019 period end. The documents to submit (electronically, as before) remain the same:
- Audited accounts
- Audit findings report
- Accounts submission cover.
The ESFA plan to publish guidance on submission later in the year.
You must also continue to publish your audited accounts on your website by 31 January 2020 and file them with Companies House within nine months of your accounting period end.
Circulation of audited accounts
The AAD now includes a paragraph as a reminder that you must comply with the Companies Act requirement to send a copy of the audited accounts to every member of the company and to every person who is entitled to receive notice of general meetings. Ensure you therefore send the audit accounts to all members and not just those who are also trustees.
Gift Aid recognition
One update is particularly relevant for academy trusts that operate a trading subsidiary. SORP Update Bulletin 2 section 3, released in October 2018, defines the requirements surrounding the recognition of Gift Aid payments by subsidiaries to their charitable parents. The Gift Aid payments are effectively a distribution of profits and should only be accounted for when the subsidiary has a legal obligation to distribute the profits. If a legal obligation does not exist at the balance sheet date then the income should not be accrued within the accounts of the academy trust. This could result in a to change the way Gift Aid donations are recognised. If you have a trading subsidiary, we would recommend you discuss this with your usual BDO adviser, so the correct position and treatment can be confirmed.
Changes to disclosure requirements
Non-statutory/non-contractual staff severance payments
The requirement to disclose the dates of any non-statutory/non-contractual staff severance payments has been removed. The total value of any payments is still required to be disclosed along with the value of each individual payment made during the year.
Funds note disclosure
Last year’s edition of the AAD introduced a requirement for a table within the funds note that showed the combined position of the current period and prior period fund movements, in addition to showing separate tables for the current period and prior period. This has been removed - a combined table is no longer required.
Tangible fixed assets
The categories of tangible fixed assets have been revised again to align these with the Sector Annual Report and Accounts (SARA). Additional categories are included within the model ‘Coketown Academy Trust’ disclosures, but its stated that only categories that are relevant should actually be included.
The guidance on accounting policies now includes consideration where an asset comprises of two or more components which have substantially different useful lives, for example, roofs or boilers. Consider the useful economic life of each separate component and depreciate each separately in line with this. Don’t forget to update your accounting policy in the accounts to reflect any changes.
The guidance also now specifies that grants received for capital purposes should be spent on capital projects in line with the terms and conditions of the grant.
For some of the disclosure notes, a requirement has been introduced to provide comparative information, including agency arrangements and events after the reporting. If you disclosed a contingent liability in the prior year accounts, you must disclose this as comparative information and provide an update where relevant. The guidance also states that comparatives could be included for any guarantees, letters of comfort or indemnities, where this would be helpful to the reader.
Defined benefit pension schemes
The disclosures in the model pension note have been updated for the current valuation of the Teachers’ Pension Scheme (TPS) . The employer contribution rate, which jumped 40% to 23.68% earlier this year, is expected to be reassessed and a new rate will be payable from 1 September 2019. Given that the financial statements will be completed after this date we expect this wording will be revised as the employer contribution rates will be in force.
The model pension note also confirms that the Parliament guarantee that the Department for Education would meet the outstanding Local Government Pension Scheme liabilities relates to the overall academy trust closure, rather than any individual academies within the trust.
Related party disclosure
From 1 April 2019, the ESFA brought in new requirements for related party transactions. All related party transactions must be reported to the ESFA in advance of the transaction taking place. You must also gain approval for transactions that are novel, contentious and/or repercussive or that exceed certain limits - either a single transaction over £20,000 or where the total value of contracts with the same related party exceeds £20,000 in a financial year. The model disclosure within the AAD has been updated to reflect these new requirements.
Use of rent-free premises
If you occupy premises under a ‘license to occupy’ and don’t include the premises as a fixed asset, there is now additional guidance to note. These licenses typically have a two year notice period set out in the agreement. If you wish to recognise the use of the premises for the notice period, you should reflect the future notional donation as a debtor with a corresponding entry for the future notional rental expense as a creditor. The value of the notional donation and notional rental expense will continue to be the amount that you would otherwise pay to secure sufficient premises.
The auditor’s report is to be updated to specifically reference the statements that are being reported on under the heading of ‘other’.
Guidance on regularity reporting is included as Annex B to the AAD and continues to provide useful guidance particularly around common irregularity themes that the ESFA are aware of. There have been no additions to the common themes and incidents, but nothing has been removed, suggesting these themes and incidents are still being seen and are the ones to look out for.
This edition clarifies that irregular expenditure not for the purpose intended includes “all alcohol” and any excessive gifts, including those purchased from unrestricted funds.
Governance is clearly a key focus for the ESFA, as the suggested evidence to be considered as part of the regularity conclusion has been extended significantly, now including:
- The number of members in place
- The number of times the trustees have met in the year (including commentary in the governance statement of how effective oversight of funds was maintained if the board has met less than six times in a year)
- How you review and develop your governance structure and composition of the board
- Written schemes of delegation
- Management accounts being shared with the Chair of trustees monthly (and with other trustees six times a year)
- The trust’s risk register
- Board oversight of capital expenditure and funding
- The establishment of an audit committee (or a committee fulfilling the functions of one)
- Factors determining executive pay being clear and recorded
- The provision for internal scrutiny being independent and objective
- Whistleblowing procedures being approved by the board.
What do the changes mean for your academy?
We’ve highlighted above how each issue may affect your academy, but the key point for you is to understand the implications for your academy specifically and to ensure you are updating your financial statements and procedures accordingly to comply with the latest edition of the AAD.
Where you have related party transactions or trading subsidiaries, you need to be aware of the new requirements and ensure that your academy trust is adhering to them. The expanded list of considerations for governance should be a useful checklist for you to review your governance arrangements and to make sure you have sufficient evidence to address each point.
For any further information or if you have any questions about the updates within the new Academies Accounts Direction and how they will impact your academy, contact your usual BDO adviser or one of our Academy School specialists:
Heather Wheelhouse – London and the South
Nick Simkins or Glen Bott – The Midlands