Academies Accounts Direction

Academies Accounts Direction 2017 to 2018 released

The Education and Skills Funding Agency (“ESFA”) has released the Academies Accounts Direction (“AAD”) 2017 to 2018. This year has seen minimal changes from last year’s version of the AAD, which will be pleasing to hear, with the main emphasis on enhancing current disclosures. The main changes in the AAD 2017 to 2018 are:

Dated: 18 June 2018 Author: Mark Gurney, Audit Senior Manager

Academy Trusts becoming inactive

The AAD has now confirmed that all academy trusts must submit their audited financial statements to the ESFA within four months of their accounting reference date. For the majority of academy trusts, this will be 31 December 2018. Where an academy trust becomes inactive, i.e. a single academy trust transfers its only school to a multi academy trust, the Trustees of the inactive academy trust have an option to change the accounting reference date to a date prior to 31 August 2018, but the four-month submission date would still apply. For example, an inactive trust changes its accounting reference date to 31 March 2018, the financial statements must be submitted to the ESFA by 31 July 2018. In addition to the financial statements, the inactive trust is also required to submit a final Accounts Return to the ESFA. Once an inactive academy trust has submitted its financial statements, and accounts return covering the prior 1 September 2017 to the date it became inactive, it has fulfilled its reporting obligation to the ESFA. [Further information can be found at section 8.9.18 of the AAD]

Trustees report changes

The main changes in the AAD this year are contained within the Trustees report.

  • This year, academy trusts are required to comply with the requirements of the Trade Union (Facility Time Publication Requirements) Regulations 2017. If the academy trust has more than 49 full time equivalent employees throughout a 7-month period within the reporting period, it must include the information included in Schedule 2 of the Regulation. This requires four tables to be included within the Trustees report covering:
    • Relevant union officials – the number of employees who were relevant union officials during the period (headcount and full-time equivalent(FTE))
    • The percentage of time spent on facility time – the number of employees, allocated by percentage bandings.
    • The percentage of pay bill spent on facility time – will need to show the total cost of facility time, total pay bill and the percentage of total pay bill.
    • Paid trade union activities – the time spent on paid trade union activities as a percentage of total paid facility time hours.

Further information and details on the calculations can be found in Statutory Instrument 2017 No. 328, The Trade Union (Facility Time Publication Requirements) Regulations 2017. 

  • There is now a requirement for academy trusts to include a section in the Trustees report on their fundraising practices in order to comply with the requirements of the Charities (Protection and Social Investment) Act 2016. Section 13 of the Act requires the academy trust to comment on:

    • Its approach to fundraising.
    • If it works with, and the oversight of, any commercial participators / professional fundraisers.
    • Confirmation that fundraising conforms to recognised standards.
    • How it monitors fundraising carried out on its behalf.
    • Details of any fundraising complaints.
    • Protection of the public, including vulnerable people, from unreasonably intrusive or persistent fundraising approaches, and undue pressure to donate. 

Further information can be found in the Charity Commission’s publication “Charity fundraising: a guide to trustee duties (CC20)” which has been updated to reflect the new requirements.

Financial statement disclosure changes

  • Following the issue of SORP Information Bulletin 1, there is now a requirement to breakdown “Expenditure on raising funds” between Direct and Allocated support costs. [see note 7 of the model accounts].
  • There is now a requirement to show comparative information in the funds note in respect of the preceding period (i.e. 31 August 2017). In addition, the AAD requires a current year 12 months and prior year 12 months combined position funds note, i.e. 1 September 2016 to 31 August 2018. [Further information can be found at section 7.7 of the AAD].  
  • The AAD has given further clarification of the treatment of capital grants for church academies. If the expenditure is incurred by the church body, the grant income should be matched to the corresponding grant expenditure to the church body, and an analysis should be given in a separate “grants” note in the financial statements. In the case where the expenditure is incurred by the academy, then in 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 on the balance sheet. A suitable asset class may be entitled “site improvement” and would be analogous to leasehold improvements for a lessee. For both treatments, an appropriate accounting policy is required to explain the treatment. [Further information can be found at section 8.4.3 of the AAD]
  • There is a small change to the presentation of the apprenticeship levy payment within the staff cost note. In last years AAD, the levy was required to be disclosed as a separate line, but this year the levy is required to be disclosed within “Social Security Costs”. This will therefore require a restatement of the prior year figures to bring inline with this years requirements. [Further information can be found at section 7.5 and section 8.13 of the AAD]
  • There are minor amendments to the fixed asset note to align with the requirements of the accounts return, including the disclosure of an assets under construction category and splitting out acquisitions from additions. [Further information can be found at section 6.2 of the AAD]
  • The AAD has further enhanced the disclosure requirements within the related party transactions note. The note must distinguish between income and expenditure related party transactions. The AAD confirms that all transactions undertaken by an academy trust with a related party must be regarded as material regardless of their size and must therefore must disclose:

    • The names of the related parties
    • A description of the relationship between the parties
    • A description of the transactions
    • The amounts involved
    • The amounts due to or from related parties at the balance sheet date, and any provisions for doubtful debts or amounts written off
    • Details of any guarantees given/received
    • Terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement

In addition confirmation is required for all amounts above £2,500 to confirm that it is provided “at no more than cost” and that the related party has provided a statement of assurance to confirm this. [Further information can be found at section 7.6 of the AAD]

  • There is also a requirement this year for related party transactions between a parent and its subsidiaries to be disclosed. Academy trusts with a trading subsidiary can therefore no longer take the exemption afforded in paragraph 33.1a of FRS 102. [Further information can be found at section 7.6.3 of the AAD]
  • For any academy trust which operates a teaching school, this years AAD has once again increased the level of required disclosure. In addition to disclosing the income and expenditure as separate headings within charitable activities, a new “teaching school trading account” is required. The trading account should detail out the direct income and any other income, together with the associated direct costs and other support costs of the teaching school for the current and prior year. [Further information can be found at section 8.14 of the AAD]

Regularity

There are further updates in this years AAD on irregularity within academy trusts as a result of several ESFA investigations. The main themes of these are:

  • Lack of prior approval for finance leases (which constitute borrowing)
  • No statement of assurance for connected party transactions
  • Connected party transactions not at cost
  • Non-contractual severance payments made without the required approvals
  • Weak internal controls

In addition to the above, there have been other occasional incidents of irregularity and impropriety which the accounting officer should be alerted to. These include:

  • The use of public funds for personal benefit
  • The lack of appropriate authorisation for expenditure, including failure to obtain ESFA approval where appropriate
  • Inappropriate procurement processes including breaches of the relevant thresholds within the European Union
  • Inappropriate authorisation, Chair of Governors acting beyond powers to authorise contracts / payments
  • Irregular expenditure not for the purpose intended e.g. excessive gifts and alcohol

[Further information can be found at section 9.1.20 of the AAD]

Summary

As it can been seen, the ESFA have not made many changes in this years AAD, but have continued to develop and enhance a number of items within the Trustees report and financial statements. This is to further enhance and improve the level of transparency within the academy sector.

A full copy of the Academies Accounts Direction 2017 to 2018 can be downloaded from here

Need further assistance?

If you have any questions regarding any of the changes to this years Academies Accounts Direction, please contact a member of your engagement team or email: academies@dains.com