The Education and Skills Funding Agency (ESFA) has updated its detailed guidance for academy trusts and auditors on preparing and auditing academy trusts' annual financial statements, with revised information in the Academies Accounts Direction for the current financial year ending 31 August 2019
All academy trusts must use the new Academies Accounts Direction when preparing their financial statements for the period ending 31 August 2019. This takes the requirements set out by the Charity Commission in its statement of recommended practice (SORP) and translates them into a form applicable to academy trusts.
The direction explains the elements which must be included in an academy trust’s annual report and financial statements and the accounting treatments required. It also provides a model format for the report and the financial statements and ensures consistency of treatment between academy trusts.
There are a number of changes in the direction requirements compared with previous years.
These include presenting the model annual report and accounts and the regularity reporting section as annexes to the document rather than within the document, and removing the requirement to include dates of payments made regarding non statutory/non-contractual staff severance payments’
The revised guidance also removes the table in the funds note which showed current year and prior year 12 months combined position as this is not required, but adds the requirement that a copy of the annual report and financial statements must be sent to every member of the company and to every person who is entitled to receive notice of general meetings.
In addition, the direction requires auditors to reference SORP Update Bulletin 2 section 3 covering income recognition for donations to academy trusts from subsidiary trading companies clarifying income is only to be accrued where there is a legal obligation to make the payment.
It revises the categories of tangible fixed assets to align these with the sector annual report and accounts, noting that if any category does not apply it can be omitted. There is now a requirement to disclose the prior year position as a comparative for agency arrangements and events after the reporting period, and to disclose comparative with an update where relevant for contingent liabilities and that comparatives could be disclosed if helpful to the reader for guarantees, letters of comfort and indemnities.
The direction also requires auditors to clarify in the accounts that the parliament guarantee regarding teachers’ pension liability relates to academy trusts not individual academies.
Academies must include in their accounting policies that where an asset comprises of two or more components which have substantially different lives, for example roof, boilers, lifts, each component must be depreciated separately over its useful economic life. They must also specify the grants received for capital purposes and that these must be spent on capital projects in line with the terms and conditions of the grant.
Additionally, the direction includes the new requirements from 1 April 2019 to report all transactions with related parties to ESFA, obtain approval where certain limits apply and include confirmation of this in the related party transactions note. This includes the requirement that if an academy trust wishes to recognise the use of premises, where these are given rent-free, for a remaining notice period it should reflect the future notional donation as a debtor with a corresponding entry for the future rental expense as a creditor.
it also clarifies that irregular expenditure includes all alcohol and any excessive gifts including those purchased from unrestricted funds, as well as including additional areas to consider when testing governance to support the conclusion on regularity.