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ESFA Academies Accounts Direction 2019-2020

On 15 June 2020, the Education Skills and Funding Agency (ESFA) released the Academies Accounts Direction for 2019/20. This document is an important source of information for all academy trusts who are preparing financial statements for the period ending 31 August 2020.

Below we have summarised the changes to the Academies Accounts Direction and other guidance relevant to academy trusts’ 2019/20 financial statements. For clarity, we have given references to the full Academies Accounts Direction throughout as well as to the example Coketown model accounts included therein where appropriate.

Note: a further supplementary bulletin covering COVID-19 related matters was released in July 2020 and introduces a small number of additional requirements. It is intended to be read in conjunction with the Accounts Direction and important things to note are:

  • That there is an encouragement for additional disclosure within several sections of the Trustees’ report around the impact of COVID-19, including activities during the year, financial review, use of volunteers, fundraising, the impact on staff and beneficiaries, financial and operational effects, reserves policy and future plans (SB 3.3)
  • The bulletin outlines that Academy Trusts should give consideration to the application of the Procurement Policy Notes issued by the Cabinet Office (PPN 02/20 and PPN 04/20) and that Trust’s Value for Money statements in their Governance Statements should detail circumstances where the Notes have been applied, and also explain any situations where COVID-19 has adversely impacted on value for money (SB 2.3.5)
  • There is a new compulsory disclosure of COVID-19 exceptional funding received within the ‘funding for educational operations’ income note, with these amounts shown on separate lines in the note along with accompanying narrative for each stream (SB 4.1.2)
  • The scope of the regularity audit is largely unchanged, but with that this year it will obviously cover COVID-19 related income and expenditure (SB 2.1.1).

Trustees’ report

For larger trusts, there are new elements of statutory reporting required in the trustees’ report arising from The Companies (Miscellaneous Reporting) Regulations 2018 (3.1.11 p12):

  • Trusts with more than 250 employees must include a statement summarising the actions taken during the period to introduce, maintain or develop employee engagement within the trust (see Coketown p90).
  • Large companies (trusts which meet two of the following three criteria: turnover in excess of £36m, a balance sheet total in excess of £18m, more than 250 employees) must include a statement summarising how they have had regard to the need to foster the trust’s business relationships with suppliers, customers and others (see Coketown p90).
  • Large companies must include a statement describing how they have had regard to the matters contained in section 17(a) to (f) of the Companies Act 2006, which relates to the requirement for the directors of a company to promote the success of the company, and in doing so, having regard to various factors (see Coketown p92).

Again mainly for larger trusts, there are new statutory requirements for streamlined energy and carbon reporting (3.1.25 p16): 

  • Large companies (trusts which meet two of the following three criteria: turnover in excess of £36m, a balance sheet total in excess of £18m, more than 250 employees) who consume more than 40,000 kWh of energy in a reporting period must disclose their UK annual energy use (in kWh) related to gas, purchased electricity and transport fuel, and associated greenhouse gas emissions (in tonnes of CO2 or equivalent). An emissions intensity ratio must be chosen by the trust, the methodologies used in the calculation of disclosures described, and a narrative of measures taken to improve energy efficiency included. The ESFA encourages this information to be published on the trust’s website before the 31 March each year too. An illustrated example of these disclosures is on Coketown p96, and the ESFA has also published separate guidance online as one of their good practice guides.
  • Large companies who consume less than 40,000 kWh are exempt from this requirement and need only include a statement in the trustees’ report to that effect.
  • Non-large companies and large companies who consume less than 40,000kWh are encouraged by the ESFA to report this information on their website anyway on a voluntary basis, but there is no requirement.

 

Governance statement

The Accounts Direction also makes changes to the governance statement, there is now a requirement for the trust to explain how its audit arrangements are affected by the newly revised FRC Ethical Standard, specifically in relation to internal scrutiny (3.2.11 p19). 

Explicit wording in Coketown (p102) clarifies the position and is as follows “The revised FRC Ethical Standard for auditors states that a firm providing external audit to an entity shall not also provide internal audit services to it, subject to transitional arrangements which permit existing audit engagements at 15 March 2020 to conclude.” 

Where trusts have reviewed and taken into account guidance in the DfE’s Governance Handbook and competency framework for governance, there is an encouragement that this is explicitly stated.

 

Statement of regularity, propriety and compliance

The 2019-20 Accounts Direction clarifies that instances of irregularity, impropriety or non-compliance noted in this statement and in the reporting accountant’s report on regularity should state the relevant monetary amounts, if known (3.3.2 p20, Annex B 2.18 p150).

Reporting accountant’s conclusion on regularity

Additional clarification surrounding the inclusion of relevant monetary amounts in respect of any modifications is also provided see 4.2.1 p22, Annex B 3.12 p152.

Primary statements and notes

There should now be new lines for legal costs within ‘analysis of support costs’ in charitable activities expenditure note (Coketown p122). Furthermore an introduction of an ‘analysis of changes in net debt’ note to the financial statements is now required to comply with the updated SORP (Coketown p134). There has also been an update to the requirements for the Teachers’ Pension Scheme note to reflect the latest actuarial valuation (Coketown p135).

Other clarifications and information

In addition to the above, further key points to note from this year’s Accounts Direction are:

  • An issued explanation that the transfer of activities to a wholly-owned subsidiary should be accounted for as a merger, to comply with the updated SORP (7.2.2 p53).
  • Confirmation that two or more subsidiaries may only be excluded from consolidation if they are not material when taken together, to comply with the updated SORP (7.2.4 p54).
  • Clarification that where a MATs constituent academies all have £nil fund balances the usual funds by academy note can be omitted and replaced instead by some short narrative (model wording at 7.1.9 p52).
  • Clarification that the requirement to have the Accounting Officer sign off the statement of regularity, propriety and compliance includes the period in the run-up to trust closure (Annex B 2.26 p151).
  • Reference to the ESFA’s checklist to help trusts prepare for external audit (4.1.5 p22). This can be accessed online and is one of the ESFA’s Academy trust financial management good practice guides.

 

What do the changes mean for my trust?

The most stringent new requirements of this year’s Direction are applicable mainly to larger trusts. Meeting the disclosure requirements of Streamlined Energy and Carbon Reporting Regulations will be onerous for some, and trusts should refer to the ESFA’s established guidance document for advice as to how to go about collating and presenting this data.

The clarification in relation to trust’s internal scrutiny arrangements was as anticipated, and is line with the FRC’s Ethical Standard released earlier this year. Trusts who currently engage their external auditor for their internal scrutiny provision where transitional arrangements do not exist, should think carefully as to how they will meet their internal scrutiny requirements for the 2020/21 financial year.

Speak to an expert

If you would like to discuss the above changes in the Accounts Direction or any other wider academy sector guidance please get in touch with your usual Buzzacott contact, or simply fill out for the form below and someone will be in touch.

 

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