The Academies Accounts Direction 2019 to 2020

30 Jun 2020

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The ESFA published the Academies Accounts Direction 2019 to 2020 on 17 June. It is relevant for the financial statements of academy trusts for the year ended 31 August 2020.

The updated Accounts Direction includes a number of new disclosure requirements, alongside some updated guidance around areas such as going concern, regularity and governance. However, there are no changes in underlying accounting principles that would impact how the financial statements are compiled.

The key changes compared to previous versions of the Accounts Direction are set out below.

Trustees’/directors’ report updates

  • The report must now include disclosures around employee engagement if the trust has more than 250 employees. These disclosures include: how the trust has had regard to employee interests and how this has impacted decision making during the year; how employees are encouraged to be involved with the trust’s performance; how employees are provided with information; and the trust’s policy in respect of applications for employment from disabled people and their training, development and promotion.
  • If the trust constitutes a large company under the Companies Act 2006, then the trustees’/directors’ report must now also include disclosures around suppliers, customers and other business relationships and stakeholders, for example beneficiaries and funders, and the community. As a reminder, companies meeting two of the following criteria qualify as large under the Companies Act 2006: a turnover of more than £36 million; a balance sheet total of more than £18 million; more than 250 employees. Disclosures should include how consideration of these relationships have impacted the principal decisions taken by the trust during the year.
  • Any trusts that are large (as defined above) and consume more than 40,000 kwh of energy in a reporting period must include statistics on energy use, including annual use in kwh and an emissions intensity ratio and narrative around energy measures taken to improve efficiency. The ESFA is also encouraging relevant trusts to publish this information on their website.
  • The above disclosures align the trust disclosures with those of large companies for periods commencing on or after 1 January 2019 and further details are included within the updated set of “Coketown” accounts.
  • The governance statement should now explicitly refer to the guidance in the Governance Handbook and Competency Framework for Governance where trustees have reviewed and taken account of these publications.
  • The risk management disclosures should include further descriptions of the internal scrutiny function and, if applicable, describe how these arrangements have been impacted by the revised Ethical Standard for Auditors published by the Financial Reporting Council, which strengthens the provisions relating to auditor independence, including internal audit.

Other disclosure updates

  • Legal costs (defined as “those where an opinion is sought from a legal professional”) should now be separately disclosed and identified within support costs.
  • As expected, there is a revised Teachers’ Pension disclosures note to reflect the latest actuarial valuation and contribution rates. This should be included within the notes to the accounts.
  • The notes to the cash flow statement should include a statement of net debt, reconciling the movements in borrowing (such as Salix loans) less cash and cash equivalents.

Regularity

  • The accounting officer’s and reporting accountant’s opinion on regularity remain driven by the requirements of the Academies Financial Handbook 2019. Whilst the Accounts Direction has not changed these principles, it has clarified that if any instances of irregularity, impropriety or non-compliance are noted in the accounting officer’s statement and the reporting accountant’s report, where possible, the amounts should be quantified.

Going concern

  • The Accounts Direction continues to include guidance on the going concern preparation of the financial statements and some general disclosures in this regard, including reference to any material uncertainties where appropriate.
  • The ESFA published guidance in March 2019 entitled Operating an Academy Trust as a Going Concern, which is signposted in the Accounts Direction and sets out the steps trustees may take in forming their going concern conclusions, including considering financial forecasts, longer-term sustainability and trustee challenge of financial information.
  • The Accounts Direction does not include reference to the current UK restrictions because of the Coronavirus pandemic, either in relation to going concern or performance during the year. As auditors, we expect that academy trusts would reference the impact of these measures in both the trustees’ report and the going concern disclosures. This is consistent with Charity Commission guidance and many company financial statements issued over this period.

The Academies Financial Handbook 2020

The ESFA also published the Academies Financial Handbook 2020 in June 2020, which is effective from 1 September 2020. This covers guidance for those governing, managing or auditing an academy trust, and includes some requirements and some best practice guidance.

The main changes in this latest edition are set out below:

  • As with the Accounts Direction, the Financial Handbook emphasises the responsibilities of the trustees around ensuring their academy trust is a going concern.
  • There are some confirmations around the nature of certain key roles at both trustee and executive level, including clarifying: members must not be employees; the accounting officer and chief financial officer should both be employees; and that trusts must appoint a clerk to the board who should not be a trustee or principal/chief executive. Larger trusts are now encouraged to consider the professional qualifications and ongoing training for the individual appointed as CFO.
  • It is expected that greater focus will be placed on the role of members going forward in ensuring good governance and trustee oversight.
  • Trusts must publish on their website the number of employees whose benefits exceeded £100,000, in £10,000 bands for the previous year ended 31 August 2020.
  • The guidance on internal scrutiny has been updated to clarify that it should cover both financial and non-financial controls and be driven by the risk register. In line with recent updates to ethical guidance in this area, the external auditor is no longer permitted to also provide internal audit services.
  • There is further guidance on the role of the audit and risk committee in relation to external audit, which notes that the committee must review the audit plan each year, review the financial statements, review the auditor’s findings and subsequent actions taken by management, and assess their effectiveness when considering re-appointment (including considerations around sector expertise, timeliness, robust challenge and use of technology). As a reminder, trusts with an annual income of over £50 million must have a dedicated audit and risk committee, which must meet at least three times per year. Other trusts are able to combine this function with another committee.
  • There are clarifications around financial controls, including clarifying that trusts must maintain a fixed asset register, must review pupil number projections (at least termly), and should complete the ‘school resource management self-assessment tool’.
  • There has been some further clarification on whistleblowing, including the requirement for all trusts to have procedures in place for whistleblowing that are published on their website.

Preparation for year end audit

We recognise preparation for year end and audit may be challenging for many trusts over the current period, against a backdrop of operational challenges within schools and within a remote working control environment. The Accounts Direction continues to signpost the ESFA’s good practice checklist to help trusts prepare for external audit, and we would be happy to discuss these and any other year end requirements with you.

If you would like to discuss any of the points raised here, please get in touch with your usual Saffery Champness partner, or contact Jonathan Davis.

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