Introduction
The Academies Accounts Direction 2021-22 and related documents applying to financial statements for the year ended 31 August 2022 were published in late March 2022.
One key impact is to clarify that the regularity requirements of the Academies Trust Handbook do not apply to transactions undertaken by subsidiary companies, other than any transactions between the academy trust and the subsidiary.
Another point is to clarify how business rates should be accounted for under the new payment regime.
Structure of documents
As in 2021, the Account Direction is split into three documents:
- Academies Accounts Direction (‘AAD’)
- Academies Model Accounts (‘Coketown accounts’)
- Framework and Guide for External Auditors and Reporting Accountants of Academy Trusts (‘Framework’).
ESFA published a supplementary bulletin to the AAD in 2020/21 which covered reporting of Covid-19 impacts and it remains applicable. ESFA does not intend to issue a further supplementary bulletin this year.
Improving quality of the trustees’ report and governance statement
The AAD this year emphasises the responsibility of trustees to ensure that the content of the annual report and accounts fairly reflects the performance and circumstances of their trust as well as complying with the financial reporting framework.
Trusts are also reminded that the text should reflect the performance and circumstances of the particular year. ESFA comments in the AAD that it is unlikely much of the text will remain unchanged from year to year.
The AAD also highlights a few inconsistencies noted by ESFA in previous years’ accounts:
- Instances where there are significant governance, control or financial issues (perhaps highlighted in the audit report), but these are not reflected in the trustees’ annual report or governance statement;
- the governance statement and the annual internal scrutiny report submitted to ESFA in December both need to provide details of the processes and areas covered by the internal scrutiny function during the year but sometimes the two lists are inconsistent;
- discrepancies between number of board or committee meetings held in year and the attendance records for individual members.
Trustees report
The section for the trustees report that deals with “structure, governance and management of the academy trust” must describe the organisational structure of any subsidiaries, joint ventures and associates. New
Governance Statement
- Details of actions taken to review the effectiveness of the board through a governance review. Reminder
- Where a governance review has not been conducted in the year, an indication of when a review will be undertaken. Reminder
- Trusts must describe the processes they have in place to manage conflicts of interest in the academy trust. They must also describe how this is done in relation to any subsidiaries, joint ventures or associates. New
Staff severance payments
There is a new requirement to disclose the values of any severance payments in bandings, in line with guidance issued by H M Treasury. An example of how that might look is as follows:
The academy trust has paid five severance payments in the year, disclosed in the following bands:
0 – £25,000 2
£25,000 – £50,000 2
£50,001 – £100,000 1
£100,001 – £150,000 0
£150,000 + 0
‘Severance payments’ are defined to include contractual payments, statutory payments and amounts paid outside of statutory or contractual requirements. The latter are now described as special staff severance payments.
Disclosure of special severance payments is required as in previous years, for example.:
“Included in staff restructuring costs are special severance payments totalling £15,000 (2020 – £nil). Individually, the amounts were £1,000, £4,000, £4,000 and £6,000”
Business rates
The business rates payment process for academies has changed with effect from 1 April 2022. For local authorities which opt into the new process, the ESFA will pay the bills directly to the authority on behalf of the academy. Hence, these academies will no longer have any transactions through their bank account in relation to business rates.
However, the AAD clarifies that academies retain liability for the business rates and so they need to account for them in their financial statements. This will be effected by grossing up the value of GAG income and including a matching expense. The adjustment will need to be made in the accounting records by a journal entry.
PFI and other service concession arrangements
AAD 2021 introduced a requirement to disclose future payments under PFI arrangements within the long-term commitments note, alongside lease commitments.
AAD 2022 expands this to also encourage the inclusion of narrative to describe what the payments relate to. The illustrative wording is as follows:
“The academy trust occupies premises which are subject to a private finance initiative (PFI) contract. The trust itself is not party to this service concession contract, however the academy trust has entered into a supporting agreement towards the costs of the local authority. The above relates to commitments to operating payments including costs for catering, cleaning, utilities, and other ancillary services”
New buildings where construction is overseen by DfE or LA
New guidance has been included in relation to new school buildings, where the construction is overseen by DfE or a local authority and transferred to the academy trust on completion.
The guidance highlights that during the construction phase, the site is managed by the DfE project team and construction costs are funded directly by DfE (or alternatively by the local LA).
The development should not be recognised in the financial statements at this stage, even if it is taking place on an existing school site. The only exception is that any contributions to the build costs paid by the trust should be recognised in the accounts as assets under construction.
When control of the site is handed over to the trust, its value will be recognised in the financial statements as either freehold or leasehold buildings, with the value being included within donations and capital grants. Depreciation will start at that date.
The AAD does not specify the value at which the new property should be recognised. Our recommendation is to recognise it at the cost of works (if that is known), and the cost of the land (if it is a new site). However, if an existing building has been replaced, it’s carrying value in fixed assets needs to be replaced or uplifted and, in this situation, it may be advisable to have the whole new building revalued by a professional. (Simply adding the new cost to the existing carrying value may result in an over valuation of the property).
Teaching school hubs etc
There is no longer a requirement to include a separate trading account for teaching school hubs or SCITT activities. However, where transactions relating to these activities are material, they should be shown as one or more separate lines on the face of the SOFA within income and expenditure and analysed in the relevant notes to the accounts.
Application of Academies Trust Handbook to subsidiary companies
The Guide clarifies that the Academies Trust Handbook (‘ATH’) does not apply to a subsidiary of an academy trust. Hence, the regularity requirements of the ATH do not apply to transactions undertaken by the subsidiary company, other than its transactions with the academy trust. Since this is a clarification by ESFA, we interpret it to apply to transactions since 1 September 2021.
Non-financial regulatory requirements
The Academies Financial Handbook was rebranded as the Academy Trust Handbook in 2021 with trusts’ obligations in relation to safeguarding, health and estates management being highlighted. The Guide now clarifies that ESFA is not requiring reporting accountants to undertake any additional procedures in relation to these non-financial areas, for the purposes of their regularity report. However, we would point out that auditors do need to undertake a review of compliance with key regulatory requirement for the purpose of their general audit report on the financial statements.
If you would like further guidance on these points or any other aspects of the Academies Accounts Direction and related documents, please contact one of your usual academy contacts at BHP for a discussion.
May 2022
