Financial reporting expert Steve Collings takes a look at the Education and Skills Funding Agency's (ESFA) Academies Accounts Direction for accounting periods ending 31 August 2018.
This Accounts Direction requires academy trusts to:
Prepare an annual report and financial statements to 31 August 2018.
Have those financial statements audited by an independent statutory auditor.
Arrange to have an independent review of regularity at the academy trust and include an independent reporting accountant’s report on regularity as part of the trust’s financial statements (this is usually prepared by the auditor).
Submit the audited accounts to ESFA by 31 December 2018 (i.e. within four months of the year-end date).
In addition, the ESFA requires all academy trusts to prepare an accounts return to enable the trust’s financial statements to be consolidated. This accounts return is to be submitted to ESFA by 21 January 2019.
All academy trusts must also publish their financial statements on their website by 31 January 2019. The website must contain at least the last two years financial statements and the financial statements must be published in full. A link to Companies House website is not a substitute for publishing the academy trust’s financial statements on its website.
Changes from the 2017 Accounts Direction
As expected, the 2018 Accounts Direction has seen changes from the 2017 edition and it is important that all those involved in the preparation of academy trusts’ financial statements, including software providers, are aware of the key changes brought about by the 2018 Accounts Direction.
Some of the key changes are outlined below:
Trade union facility time
This is regarded as a significant change brought about by the 2018 Accounts Direction. The academy trust must disclose information in the trustees’ report in order to comply with the Trade Union (Facility Time Publication Requirements) Regulations 2017.
This is a new requirement for academy trusts which have more than 49 full-time equivalent employees throughout any seven months during the reporting period.
The information required to be disclosed consists of four tables which cover the following areas:
The number of employees that were relevant union officials during the reporting period (both headcount and full-time equivalent basis).
The number of employees and their percentage of time spent on facility time.
The percentage of the pay bill spent on facility time.
Details of paid trade union activities.
Trustees must set adequate time aside to prepare this report correctly. The Accounts Direction refers trustees to Statutory Instrument 2017/328 The Trade Union (Facility Time Publication Requirements) Regulations 2017.
The model accounts (Coketown Academy Trust) in the 2018 Accounts Direction provides guidance on pages 20 and 21.
Again, this is another new requirement under the 2018 Accounts Direction. Information is required to be disclosed in the trustees report concerning the trust’s fundraising practices. This is to comply with the requirements of the Charities (Protection and Social Investment) Act 2016.
As with the trade union facility time requirements, trustees are advised to set an adequate period of time aside to deal with this new issue, which must include:
The trust’s approach to fundraising.
Particulars of any work with, and oversight of, any commercial participators and/or professional fundraisers.
Confirmation that any fundraising is conforming to recognised standards.
Details of the monitoring of fundraising carried out on its behalf.
Any fundraising complaints.
Protection of the public, including vulnerable people, from unreasonably intrusive or persistent fundraising approaches and undue pressure to donate.
The model accounts in the 2018 Accounts Direction provides guidance on page 24 and cross-refers trustees to the Charity Commission publication ‘Charity fundraising: a guide to trustee duties (CC20)’ which has been updated to reflect the new requirements.
In the 2017 Accounts Direction, costs incurred as part of the Apprenticeship Levy were required to be shown as a separate item in the staff costs note. The 2018 Accounts Direction changes this requirement and requires such costs to be shown within social security costs.
A restatement of prior year figures will also be needed so that the comparatives are consistent.
Sections 7.5 and 8.13 of the 2018 Accounts Direction provide further guidance in this area. Note 10a in the model accounts provides an illustrative example of the staff costs note.
Expenditure on raising funds
The financial statements for the year-/period-ended 31 August 2018 must now provide an analysis of the trust’s expenditure on raising funds which is split between direct costs and support costs so as to comply with SORP Information Bulletin 1. Note 7 in the model accounts provides an illustrative example.
The 2018 Accounts Direction expands the funds note so that it now includes comparative information in respect of the preceding accounting period and, where the current and prior periods have been 12 months long, an analysis which shows the combined position so as to reflect SORP Information Bulletin 1.
Section 7.7 of the 2018 Accounts Direction provides further guidance in this area. Note 19 in the model accounts also provides an example of how this should look. Effectively the funds note will cover the period from 1 September 2016 to 31 August 2018.
Enhancements have been made to the related parties note so as to distinguish between income and expenditure related party transactions and include confirmation that any element in excess of £2,500 is provided ‘at no more than cost’ and supported by a statement of assurance from the related party confirming this. Section 7.6.12 provides the guidance in this area and an illustrative example is shown in the model accounts in note 31 on page 63 of the 2018 Accounts Direction.
While not specifically covered in the schedule of changes at the front of the 2018 Accounts Direction, it must be emphasised that the related party transactions note must disclose particulars of all intra-group transactions. Paragraph 33.1A of FRS 102 provides an exemption from disclosing transactions entered into between two, or more, members of a group provided that any subsidiary which is a party to the transaction is wholly owned by such a member. This exemption cannot be applied by an academy trust and its subsidiaries, associates and joint ventures.
The prohibition from applying paragraph 33.1A of FRS 102 is consistent with paragraph 23.4 of the SORP 2015.
The purchase of alcohol and excessive gifts is now provided as an example 9.1.22 of irregular expenditure not for the purposes intended. Therefore the purchase of any alcohol and gifts for, say, staff members or other third parties must be carefully considered before the expenditure is entered into.
Capital grants: Land and buildings
The 2018 Accounts Direction provides updated guidance in respect of land and buildings. Section 8.4.3 of the 2018 Accounts Direction states that, in the case of church academies, in which the related land and buildings are not recognised by the academy trust, capital grants are still recognised when they are received. When expenditure is incurred by the church body, the grant received is matched to the corresponding grant expenditure to the church body which holds the land and buildings as a donation and not income from charitable activities.
Where expenditure is incurred by the academy, it may be appropriate for the academy trust to recognise a site improvement asset funded by capital grants, even if the site is not recognised as land and buildings in the trust’s own financial statements. This is analogous to leasehold improvements for a lessee.
Teaching schools are now required to disclose a trading account showing income and expenditure on the school’s performance during the year within the notes to the financial statements.
There are some important changes that have arisen in this year’s Accounts Direction which must be understood by all those involved in the preparation and audit of academy trusts’ financial statements. As noted above, time should be set aside by the trustees to deal with the additional disclosure requirements (such as the Trade Union Facility Time disclosure and the fundraising practices disclosure) to ensure they comply with the requirements of the Accounts Direction.
About Steven Collings
Steve Collings, FMAAT FCCA is the audit and technical partner at Leavitt Walmsley Associates Ltd where Steve trained and qualified.