In April 2021, the ESFA issued the 2021 Academies Accounts Direction, which sets out the financial reporting requirements for academy trust accounts for the year ended 31 August 2021.
Alongside this document, updated model accounts and a separate document for external auditors were also issued (the ‘Framework and guide for external auditors and reporting accountants of academy trusts’).
There are no major changes in the 2021 Accounts Direction compared to the 2020 version, and the main updates relate to clarification around certain disclosures, in particular the financial review section of the trustees’ report, alignment of the income reporting to that required for the Annual Accounts Return, and a section discussing the different options with regard to audit opinions. The framework and guide for external auditors also includes some suggested tests with regard to the regularity audit opinion, which mirror the requirements of the Academies Financial Handbook 2020.
It is expected that guidance will be issued in the near future around the financial reporting and auditing of matters specifically relating to the Covid-19 pandemic and we will provide an update in this area when this is released.
We have set out the main changes below, alongside an update on content of the audit report, in line with updated auditing standards relevant for the current year, and a summary of the latest Department for Education (DfE) advances on the Annual Accounts Return.
Trustees’ report disclosures
In general, the ESFA have emphasised that academy trusts must ensure that their financial statement disclosures are tailored and not lifted entirely from the model accounts. In particular, they expect the governance section to be specific and consistent with the auditors’ management letter reporting, and sufficient details should be included around the internal audit function, governance reviews and actions taken to deal with control weaknesses.
Further clarity has also been included on the financial review section of the trustees’ report, noting that trusts must explain both the financial position and performance of the trust, based on the balance sheet and the statement of financial activities (SOFA) respectively, including an explanation of why a trust has realised a particular surplus or deficit in the period. The financial review section must also cover principal funding sources, key balance sheet items, investment policies and fundraising practices. Further disclosures are required for those trusts which have been subject to a financial notice to improve at any point during the financial year.
The allocation of funding received for educational operations has been clarified and the headings in this note to the financial statement have been updated to separately disclose pupil premium funding and funding for free school meals. This should also more closely align with the requirements of the Annual Accounts Return.
Clarification has been included within the 2021 Accounts Direction that where academy trusts are party to a secondary concession arrangement (such a PFI agreement where they are not the main signatory but contribute by way of annual charges, for example), these commitment should be included within the long-term commitments note to the accounts.
A reminder has also been included this year around the requirement for academy trusts to assess their leases against the requirement of financial reporting standards to confirm whether the risks and rewards within them are indicative of a finance or operating lease, and also a reminder that certain contracts, such as catering contracts, may include embedded leases.
The Accounts Direction 2021 sets out more information around audit opinions, and also of note for August 2021 year ends are some overall changes to the content of the auditors’ report. In accordance with revised auditing standards, the audit report will include further details around the going concern opinion and specific laws and regulations relevant to an academy. As such, as well as some wording changes to include within your statutory accounts, your audit team are likely to carry out further testing and raise further queries in these areas.
Annual Accounts Return (AAR) update
The DfE has developed automation technology to help reduce the burden on academy trusts of submitting their AARs. This technology enables trusts to electronically submit their trial balance data directly from their financial management software to the DfE, where it will then be used to pre-populate up to 80% of the accounts return. Other fields will then be completed manually as normal. The DfE envisage that this technology can deliver sizable time saving benefits to the sector.
The trust will need to use the DfE’s Chart of Accounts (CoA) to allow the data transfer and this is key to the automation process. There are two methods that a trust can apply. They can adopt the DfE’s CoA codes as a whole in their financial management system or alternatively, perform a mapping exercise to marry up their codes with the DfE’s CoA before the trial balance is submitted. Detailed guidance on the process of AAR automation and the DfE’s Chart of Accounts has been provided by the DfE here.
A number of trusts used the automation technology for their 2019-20 accounts returns and provided feedback to the DfE. Users at both trusts and external audit firms found the process easier and quicker from a preparation perspective. The system can also produce detailed mapping reports which external auditors found particularly useful for their audit procedures to see where the data in the accounts return had been pulled from.
The DfE are working with an increasing number of software suppliers in the academy sector to make the technology available to as many trusts as possible over the next few years. At present, Hoge and Capita accounting software has already been integrated and is available for the automation. The DfE are working closely with the other 4 main suppliers (Civica, Access, Sage and PS Financials) with the aim to get the technology available for the 2021 AAR and they are encouraging Trusts to engage with their software supplier to discuss the availability of automation.
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.