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EFA publishes Academies Accounts Direction 2013

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22nd Jul 2013
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In May 2013, the Education Funding Agency (EFA) published the Academies Accounts Direction 2013 (AAD 2013).

Academy auditors welcomed the publication date as the AAD 2012 was published in August 2012. This meant audit firms were already in the planning phases of their audits and coupled with the fact that guidance concerning the audit of regularity was also published quite late, the EFA has done well to publish the AAD 2013 in a timely manner. 

The EFA has said that they anticipate that going forward, each revised AAD will be published in good time to enable academies and their auditors to plan their work accordingly. 

However, as the AAD becomes more established and accounting practices and methodologies are enhanced, it is envisaged that the AAD will not be subject to wholesale change from one academic year to the next so we should start to see some consistency in the method financial statements for academies are prepared.

It is also worth pointing out that the EFA has also published an updated Academies Financial Handbook for 2013 which was published on 3 July 2013. 

The handbook goes hand-in-hand with the funding agreement and it documents the relationship between an academy and the EFA. 

The 2013 edition has been developed following an extensive consultation with the ‘Academies Finance and Assurance Steering Group’ and focuses on rules rather than detailed guidance. In addition, the 2013 handbook also emphasises the accounting officer’s personal responsibility to ensure regularity, propriety and value for money. 

It's also worth noting that the accounting officer is not the person responsible for the preparation of the accounts or the business manager. The term itself is quite old and the accounting officer is the person who has a legal obligation to appear before parliamentary committees to account for certain actions. In academies, the accounting officer would ordinarily be the principal.

In 2011/12, the EFA received just under 1,500 sets of audited financial statements that had been audited by more than 200 audit firms. 

The objective of the AAD is therefore to ensure consistency across the areas of auditing and financial reporting. At a recent conference held by the EFA, it confirmed 87% of Academies met the 31 December 2012 deadline for submission of their financial statements. 

By the end of March 2013, 98% had submitted and by the end of May 2013 only three Academies had failed to submit their audited financial statements. Some audit firms have expressed their concern over filing deadlines because of the significantly short timescale that an audit firm has in auditing and finalising financial statements for a 31 December deadline. 

The EFA has confirmed that due to their own financial reporting processes and the process involved in consolidating academies’ financial statements in whole of government accounts, the 31 December deadline is not going to change in the foreseeable future.

The EFA confirmed that for the 2012 audit, there were 29 qualified audit opinions and only one adverse opinion.  The main reason for the qualified audit opinions was non-compliance with the disclosure requirements for staff trustees (governors) and their remuneration. 

Academies Accounts Direction 2013

The AAD 2013 sets out certain requirements that academies are expected to comply with and in the broadest terms, these are:

  • Prepare an annual report and financial statements to 31 August 2013
  • Have the accounts audited by an independent auditor
  • Submit the audited accounts to the EFA by 31 December 2013 (with a copy of the management letter)
  • File the accounts with the companies registrar as required under Companies Act 2006
  • Arrange an independent audit of regularity and include the auditor’s report on regularity as part of the trust’s accounts

In the previous AAD 2012, there was a requirement for academies to publish their audited financial statements on their website. However, the previous AAD 2012 did not specify a deadline for this to take place and the AAD 2013 confirms that academies must publish their audited financial statements on their website by 31 May 2014.

The AAD 2013 has been restructured into a more user-friendly document. It also contains hyperlinks that enable the user of the AAD to jump directly to a certain area of the document.

A summary of the AAD 2013 is as follows:

2012 Accounts Direction

2013 Accounts Direction

Foreword

Introduction

Chapter 1: Summary of requirements

Part 1: Basic requirements and timetable

Chapter 2: Annual report and accounts requirements

Part 2: Elements of the reports and financial statements

Chapter 3: Model financial statements

Part 3: Model reports and financial statements

Chapter 4: Newly converted academy disclosures

Part 4: Academy reports

Part 5: Auditor’s reports

Part 6: Financial statements

Part 7: Notes to the financial statements

Part 8: Specific topics and related accounting treatments

Part 9: Checklists

Part 10: Regularity reporting

Part 11: Further sources of information

Part 12: Acknowledgements

The content of the AAD 2013 has seen several changes from the 2012 version as follows:

Clarification of responsibilities

The meanings of the terms ‘member’, ‘trustee’, ‘director’ and ‘governor’ have been clarified in the AAD 2013.

The 2013 version confirms that a trustee is taken to be the same as both the directors and the governors of the academy and the introduction to the 2013 AAD confirms that the trustees are the people responsible under the academy trust’s governing document for controlling its management and administration. 

They are responsible for directing the academy’s affairs, and for ensuring that it is solvent, well-run, and delivering the charitable outcomes for the benefit of the public for which it has been set up. The Coketown Academy model financial statements also refer to a trustees report because the AAD 2013 now refers to trustees throughout as opposed to governors.

The introduction to the AAD 2013 also confirms that in a multi-academy trust, arrangements can be different and governors at an individual academy may not necessarily be trustees of the overall trust under the articles of association. 

Members of an academy trust have a different status according to the AAD 2013. They include those that have subscribed to the academy trust’s memorandum of association together with any other individuals permitted under its articles of association.

They also have limited financial liability to the academy trust should it be wound up and this will be outlined in the memorandum and articles of association.

Financial reporting requirements

Academies will prepare financial statements to 31 August each year. Newly-converted academies, or their auditors, should ensure that the accounting reference date at Companies House is also changed to 31 August. 

A newly-converted academy can prepare financial statements of up to 18 months from the date of incorporation but not more than 18 months. For an Academy that is dormant between the date of incorporation and 31 August can prepare dormant accounts.

Audited financial statements and a copy of the auditor’s management letter must be submitted to EFA by 31 December 2013. These should be electronic versions of the financial statements and management letter and should be emailed to [email protected].

Academies with a 31 August 2013 year-end date should also file the financial statements at Companies House no later than 31 May 2014 (the same date academies are now required to publish financial statements on their own website). 

If the academy is preparing accounts for a long accounting period, the financial statements should be filed by the later of 21 months of the date of incorporation or three months of the accounting period end.

Financial statements

A set of financial statements prepared for an academy must include the following:

  • A trustees’ report
  • A governance statement
  • A statement on regularity, propriety and compliance
  • A statement of trustees’ responsibilities
  • An independent auditor’s report on the financial statements
  • An independent auditor’s report on regularity
  • A statement of financial activities
  • A balance sheet
  • A cash flow statement
  • Notes to the financial statements

An academy will only present a separate income and expenditure account in rare circumstances because all items of income, expense, gains and losses will ordinarily be presented through the SoFA.

Trustees report

Paragraph 4.1.11 requires a trustees’ report to cover the following:

  • Reference and administrative details
  • Structure, governance and management
  • Objectives and activities
  • Achievements and performance
  • Financial review
  • Plans for future periods
  • Funds held as custodian trustee on behalf of others

There are also certain specific requirements laid down in Companies Act 2006 which are required to be disclosed in the trustees’ report as follows:

Employees and disabled persons

Where the average number of employees exceeds 250, the academy trust must disclose its policy for applications for employment from disabled persons, the treatment of employees who become disabled and the training, career development and promotion of disabled persons. 

For employee consultation, the trust must include a description of the action taken during the year to introduce, maintain or develop arrangements to provide information and consult employees on matters affecting them.

Fixed assets

Where the market value of the land and buildings is materially different to the net book value in the balance sheet, explanations should be made as to the difference in amount.

Charitable donations

Where the academy trust makes charitable donations that exceed £2,000 it is required to disclose the purposes for which the money was given and the amount of money given.

Trustees’ indemnities

Because the trustees are directors, disclosure of any third party indemnity provisions during the year should be made.

Additional information relating to the reserves policy

  • For ‘free’ (i.e. unrestricted) reserves, the academy trust’s reserves policy should disclose:
  • Why reserves are held
  • What level or range of reserves is considered appropriate for the academy trust
  • What the level of reserves is at the year-end
  • How the academy trust is going to achieve the desired level or range of reserves
  • How often the reserves policy is reviewed

Paragraph 4.1.22 also says that ‘whilst there is this requirement to disclose the ‘free’ reserves policy (unrestricted funds), the trustees may determine, as good practice, to disclose their policy in relation to other reserves (eg restricted general funds, including GAG).’

Governance statement

The structure of the governance statement in AAD 2013 is split into six sections, notably:

  • Scope of responsibility
  • Governance
  • Purpose of the system of internal control
  • Capacity to handle risk
  • Risk and control framework
  • Review of effectiveness

Paragraph 4.2.2 to AAD 2013 confirms that only the scope of responsibility section will be generic (i.e. the text can simply be ‘copied and pasted’ from the Coketown model accounts into an academy’s governance statement) and only minor tailoring will be required where the principal is not the accounting officer. 

But the remaining five sections of the governance statement must be tailored to be academy-specific (i.e. by reflecting specific circumstances). 

Recognition of grants in the statement of financial activities (SoFA)

The objective of AAD 2013 where the SoFA is concerned is to increase consistency in accounting treatment across the academies’ sector and users will find that the AAD 2013 provides explanations relating to the presentation of funds and activities as follows:

  • GAG and other grants paid for the year-ending 31 August would be recognised in full in that year, with any unspent amount at 31 August being reflected as a balance in restricted general funds at that date
  • Other general grants paid in respect of a year-ending 31 March would instead be recognised in that year and should be apportioned over two academy accounting periods. This currently includes pupil premium grants
  • Grants received for capital purposes (to provide for fixed assets) should be recognised when they are ‘receivable’, ie when there is entitlement, certainty and measurement. This currently includes academies capital maintenance fund grants. Paragraph 111 of the SORP states that capital grants should not be deferred over the life of the asset.  [AAD 2013 8.3.2]

Restricted and unrestricted funds

There has been clarification in AAD 2013 as to what constitutes ‘restricted’ and ‘unrestricted’ funds which are shown in the following table:

Restricted funds:

Unrestricted funds:

EFA General Annual Grant (GAG)

Fees for hiring out facilities such as rooms and sports pitches

Other EFA revenue grants such as pupil premium

Fees from parents for private music tuition

Other government revenue grants, including local authority funding for high needs pupils

Fees from parents for private nursery provision

Donations with restrictions attached (i.e. received for specific revenue purposes)

Fees for school meals

Boarding activities if these are undertaken

Proceeds from other trading activities including those of consolidated subsidiaries

Any other ‘school fund’ accounts on the assumption they are not subject to restrictions

Donations with no restrictions attached

In addition, paragraph 6.1.10 confirms that the restricted fixed asset fund will contain resources to be spent for particular capital purposes including the following incoming resources and related expenditure:

  • EFA capital grants
  • Other government capital grants
  • Sponsorship monies received for capital projects
  • Donated fixed assets such as academy buildings transferred from the local authority

Income and expenditure

The EFA is striving for consistency across the academies’ sector in financial reporting and the AAD 2013 provides further guidance as to the classifications of income and expenditure in the SoFA. 

There are still three categories which are then sub-split on the SoFA which are:

  • Generated funds
  • Charitable activities
  • Governance costs

Generated funds

Related expenditure

Voluntary income

Costs of generating voluntary income

Activities for generating funds

Fundraising trading

Investment income

Investment management costs (if applicable)

Charitable activities

Related expenditure

Funding for the academy trust’s educational operations

Academy trust’s educational operations to include both direct and support costs

Provision of boarding activities

Governance costs

Paragraph 210 to the Charities SORP defines this as ‘the cost of governance arrangements which relate to the general running of the charity as opposed to the direct management functions inherent in generating funds, service delivery and programme of project work.’

Paragraph 6.1.20 of AAD 2013 outlines that governance costs will include

  • Legal advice for the trustees
  • External audit fees for the audit of the accounts
  • Other audit fees
  • Costs associated with constitutional and statutory requirements, e.g. the cost of trustee meetings such as support staff and trustee expenses

Paragraph 6.1.18 breaks down generated funds and charitable activities further as follows:

Voluntary income - this includes gifts/donations/sponsorship whether in cash or in kind such as donated goods and services. A note to the accounts should provide a breakdown of voluntary income. 

Activities for generating funds - these are the trading and other activities carried out by the trust to generate income for its charitable activities. For example, it could include fundraising events, letting of property, shop income and proceeds from providing other goods and services other than for the benefit of the trust’s charitable beneficiaries. 

Investment income - this includes interest on investments and rent from investment properties.

Costs of generating voluntary income - this includes costs of fundraising, other than through trading, such as advertising and marketing.

Fundraising trading - this includes costs incurred by trading for a fundraising purpose, such as costs of goods sold or services provided. In consolidated accounts this will include the costs incurred by a trading subsidiary.

Paragraph 6.1.19 deals with charitable activities as follows:

Funding for the academy trust’s educational operations includes grants such as the EFA General Annual Grant (GAG), other EFA grants and other government grants, including local authority funding.

Provision of boarding activities - this contains income received in respect of pupil boarding, where relevant.

Academy trust’s educational operations - this should comprise all expenditure directly relating to the provision of education, and hence the large majority of expenditure from EFA grants.  A note to the accounts (note eight in the model) provides a conventional breakdown of this line. Pages 69 and 70 to the AAD 2013 gives a comprehensive breakdown of what constitutes ‘direct’ and ‘support’ costs.

Steve Collings is the audit and technical partner at Leavitt Walmsley Associates Ltd and the author of ‘Interpretation and Application of International Standards on Auditing’ and ‘AccountingWEB Guide to IFRS’.  He is also the author of ‘IFRS For Dummies’ and was named ‘Accounting Technician of the Year’ at the 2011 British Accountancy Awards.

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