The Education and Skills Funding Agency (“ESFA”) has released the Academies Accounts Direction (“AAD”) that will apply to academy trust accounts for the year ending 31 August 2022. The release of the document in March is a big step forward from the early days of the sector when the equivalent guidance was routinely published just a handful of weeks before trusts’ year ends.
Deadlines
Key deadlines for 2022 reporting remain the same. Academies must submit audited accounts and associated documents to the ESFA by 31 December 2022 and must publish the audited accounts on the trust’s website by 31 January 2023. Filing deadline for placing the accounts at Companies House remains 31 May, although there is probably no good reason for delaying this beyond 31 January given the requirement for public disclosure by then on the trust’s website. Corporation tax returns for any entities where one is required will need to be filed by 31 August 2023, with any tax payable being due by 31 May.
Trustees’ Reports and associated statement
The significant reminders brought forward from prior years are:
The AAD notes that best practice is that the board should be carrying out an internal review of its own effectiveness at least annually and commissioning external reviews “routinely” without giving any hint as to what interval should be considered routine. The history of the academy sector is that things that start as ‘best practice’, quite often evolve into mandated requirements, so it would be no surprise to see rotating external governance reviews included within a future edition of the Handbook.
Subsidiaries
Whilst the number of academy trusts with either subsidiaries or joint ventures is relatively few, those that do exist are often significant sources of non-teaching income to the trust. These arrangements are perhaps most common where the academy premises includes leisure centre, or similar community facilities. The AAD confirms that the organisational structure and governance of any subsidiaries or JVs should be explained in detail as well as that of the main academy trust. Presumably what the ESFA is trying to ensure is that the governance of any non-academy vehicles is sufficiently robust as regards the protection of any public money and the avoidance of conflicts of interest.
Conflicts of interest
Conflicts of interest are central to The Seven Principles of Public Life, frequently referred to as The Nolan Principles. The Trustees Report must explicitly describe the mechanisms in place to identify and manage conflicts of interest, whether in relation to the main trust or any subsidiaries or joint ventures. More detail on how charities should go about managing such conflicts can be found in the Charity Commission publication CC29 - Conflicts of interest: a guide for charity trustees. Although academies are exempt charities and are not therefore within the Commission’s regulatory remit, the Commission’s guidance notes remain essential reading for trustees.
Staff trustee remuneration
The name and salary details must be disclosed for all trustees who are also employees, regardless of the employee’s role. Disclosure of staff governor remuneration has been an unpopular requirement since at least 2011 and it is slightly surprising that the AAD hints that some academy accounts are still resisting these disclosures.
Severance payments
In May 2021 HM Treasury issued updated guidance on the use of severance payments within all central government funded bodies, and this had been incorporated into the AAD. All severance payments must be disclosed within bands of £0-£25,000, £25,001-£50,000, £50,001-£75,000 and so on, although the identity of the recipient will not need to be disclosed unless the employee concerned is also a Trustee. Any “special severance payments” which are broadly those that are neither statutory nor contractual will need to be disclosed individually, although the name of the recipient will not need to be disclosed unless that person is a Trustee. The AAD confirms that confidentiality cannot be used as an excuse for non-disclosure.
Service concession arrangements
Whilst academies are almost never primary parties to service concession arrangements (normally known as PFI contracts) they may make payments to their original Local Authority under the terms of that Authority’s contract with the PFI provider. Whilst these are not in themselves lease payments the AAD requires scheduled payments to be disclosed as long term commitments in an equivalent note. A new requirement for this year is to add narrative explaining what the payments are for, with Coketown using the example of “catering, cleaning, utilities and other ancillary services.” Clearly the exact nature of the services provided will vary from one trust to another, and with the level of analysis required still being quite vague it is difficult to see what insight this additional requirement will bring.
Transferred fixed assets
DfE has been undertaking two major school building programmes: Free Schools (“FS”) and Priority Schools Building Programme (“PSBP”). Under both programmes the construction phase is managed by the DfE project team and the construction costs are met by the DfE. As the construction costs are met by the DfE individual schools do not recognise any asset during the build phase, except where the school is funding part of the build cost itself – normally where the specification includes items which are not part of the DfE standards. In this case, any contribution to the construction cost is recognised in the Balance Sheet as Assets Under Construction and is not depreciated.
When the completed asset is handed over to the trust, the trust recognises a fixed asset and an equal donation within the restricted fixed asset fund. The value of the asset can normally be obtained from DfE and will likely simply be the build cost. Where any land element is involved, it is important that the total value is split between the land and the buildings element.
The new asset is depreciated from the point at which it is available for operational use according to the trust’s existing policy for depreciation. No depreciation is charged on the land element of the cost.
Business rates
From 1 April 2022 academies no longer pay their own business rates, which are instead paid for centrally by the ESFA. This does not mean that academies no longer record a charge for business rates, but instead record the full charge as well as an equal and opposite grant within GAG. For example, if the business rates charge is equivalent to £5,000 per month, then the journal for the period 1 April 2022-31 August 2022 is Dr Rates £25,000 Cr GAG income £25,000. Although this may seem slightly counterintuitive to record both a donation and a charge where no cash has changed hands from the academy’s perspective, this is in line with the long-established SORP practice where a third party settles a liability on the charity’s behalf.
Dormant accounts
In a sensible relaxation, any academy companies which are now dormant, normally where assets etc have been transferred to a successor trust, do not need to submit dormant accounts to the ESFA. Accounts will still need to be prepared and filed for Companies House within the normal deadlines.
Teaching school trading accounts
Where a school delivers activities outside of its core, such as a teaching school or a SCITT, the requirement to prepare a separate trading account for these activities, although any material transactions, whether cost or revenue, should still be shown prominently in the SoFA and the notes.
Summary
There is relatively little that is new or changed in terms of the content of the audited accounts, and most of what there is is sector-specific application of existing accounting rules, together with some additional content driven by wider HM Treasury reporting requirements.
Trustees’ reports and Governance statements are where a lot of the focus lies, and specifically a steer away from boilerplate reporting towards detailed explanation of what each trust is doing. This is likely to make writing these reports even more time consuming than it already is and will involve the input from many people within most trusts. It is also a clear indication of what the ESFA sees as the priorities for improvement within the sector, and it will be interesting to see to what extent the next version of the Academy Trust Handbook continues this theme.
If you have any questions on the content or impact of the AAD please contact your usual lead at James Cowper Kreston.
