The good news is that there are no new significant requirements this year. However, there are a few notable clarifications that have been introduced. The most significant clarification surrounds school buildings safety risk which comes to the forefront of the agenda due to the risk of school buildings collapsing.
According to the Department for Educations Annual report this is one of their key risks and they have raised it to ‘critical – very likely’. It states: “There is a risk of collapse of one or more blocks in some schools which are at or approaching the end of their designed life-expectancy and structural integrity is impaired.
The risk predominantly exists in those buildings built in the years 1945 to 1970 which used ‘system build’ light frame techniques.” Firefighters were called to a school in London earlier this year after the top half of a brick tower next to a sports hall collapsed onto the roof. There were no reported injuries.
So, with a clarification comes some new requirements:
- The financial review always included the requirement to explain the academy trust’s principal risks and uncertainties and its plan for managing those risks. This should now include the consideration of those risks impacting on the trustees’ responsibilities for ensuring the trust’s estate is safe (Paragraph 2.14).
- clarified that the review of value for money statement encompasses estates safety and management (Paragraph 2.40)
- suggested that accounting officers should consider demonstrating how they have effectively used relevant funding to ensure the trust’s estate is safe, well-maintained, and complies with relevant regulations, as one of their value for money examples (Paragraph 2.42)
- clarified that the statement on regularity, propriety and compliance encompasses estates safety and management (Paragraph 2.60)
There is clarification on how Trustees should use the Direction (introduction). They are not expected to have a detailed understanding of the Direction’s technical accounting requirements but will find it helpful in ensuring they fulfil their financial reporting responsibilities.
There is clarification that the trust is required to have an accounting officer at all times, so the Board should make plans for cover if the accounting officer is planning to leave. This should include appropriate briefing and/or information available for the new accounting officer.
Such interim arrangements should be put in place for all key signatories to ensure the accounts can be signed on time. (Paragraph 1.18).
Areas of non-compliance with the Direction have been highlighted (Paragraph 1.21):
- For the annual report trusts should avoid the use of boilerplate narrative, ensure text is updated from the prior year and is consistent with the accounts.
- Trusts should forward plan taking into account departures of key staff/significant activities at the trust to ensure deadlines are met.
Areas that are often omitted are listed:
- trustees report, structure governance and management – when describing the organisational structure, ensure information is included in relation to any subsidiaries, joint ventures and associates (Paragraph 2.8).
Governance statement: -
- ensure there is adequate information relating to the governance framework.
- for the audit and risk committee (Paragraph 2.35).
- ensure there is an adequate description of the processes in place to manage conflicts of interest in the academy trust. These processes should extend beyond requiring declarations of business interests (Paragraph 2.36).
- ensure that processes in place to manage conflicts of interest, for any subsidiaries, joint ventures, or associates, are included (Paragraph 2.36).
- ensure there is an explanation as to why the academy trust chose a particular option for delivering internal scrutiny (Paragraph 2.47).
- related party transactions, trustees’ remuneration note 12 -remember to make any relevant disclosures and to disclose the (personal) name of any staff member who is also a trustee (Paragraphs 2.161-2.167).
Feedback from the ESFAs assurance work is given (Paragraph 1.22). The main reasons for qualification of the accounts last year were Local Government Pension Scheme valuations and the accounting treatment of land and buildings. (0.5% of statements were qualified last year). The main reasons for a modified regularity opinion were internal financial reporting and related party transactions. (7.9% were qualified last year).
Guidance has been updated on the treatment of loans (paragraph 2.113). All amounts owed, accrued, or deferred by the academy trust should be included under this balance sheet heading at their settlement amount (being the amount the academy trust expects to pay to settle the debt).
The amount owed must be split between amounts falling due within one year and amounts falling due after more than one year. Trusts need to consider if loans meet the SORP guidance for concessionary loans – to further a charity’s objectives where interest is charged at below market rates.
If the loan is concessionary, they can choose whether to recognise such loans at ‘fair value’ or, more simply, to recognise them at the amount received less any repayments.
Academy Trusts are reminded of the need to separately disclose GAG and any other material income sources in note 4 (Paragraph 2.130). Any remaining non-material sources of funding, from DfE or ESFA, can be grouped together.
Finally, there is clarification that teaching assistants are categorised as support staff in the staff costs note (Paragraph 2.137).
We hope you have found this summary helpful. If it raises queries for you do not hesitate to get in touch.
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