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Academy Financial Statements

By the time this article is read, most Academy Trusts will be towards the end of the annual process to prepare and audit their financial statements and the various meetings of trustees will be taking place to review and approve the financial statements.

As accountants and auditors, we attend many of these meetings and are often asked to explain to school staff and trustees what the accounts actually mean. Academy Trust accounts can often run to 60 or 70 pages and are some of the most complicated accounts that we get involved in preparing.

They are much harder to understand than a set of accounts for a private trading company with an income of a similar level. With an Academy set of accounts you can’t just look at the Statement of Financial Activities and see the day to day surplus or deficit for the year and often the numbers on that page bear little relation to the management accounts carefully prepared and presented during the year by the Trust’s accounts team. We therefore thought it would be useful to answer a few common questions raised by trustees.

Why are the accounts so long and complicated?

The Academies Accounts Direction requires an Academy Trust to prepare financial statements using a certain format and include a number of prescribed sections and disclosures. This is set out in the Coketown model set of financial statements. Therefore, whilst not all sections are required in every case, a Trust has relatively little discretion in the format and content of their financial statements.

Why are there two audit reports?

When we undertake the audit there are actually two assignments that we are required to undertake. The first of these is a “normal” audit which is similar in nature to an audit performed for a company or a charity. This is undertaken using the International Standards on Auditing and the objective is for us to be able to state that the financial statements show a “true and fair view”.

The second assignment is something called a limited assurance engagement. This is referred to as the regularity report and effectively we state that nothing has come to our attention which suggests that the income received has not been spent on things that it should not be spent on.

What is the Statement of Financial Activities?

This is effectively the profit & loss account for the Trust. It shows the income and expenditure for a period of time – normally a year. It also shows the change in value of other assets and liabilities such as the pension scheme.

What are all the columns for?

There are three main columns for the current year, plus a total and a comparative column showing the prior year. The main columns are:

  • Unrestricted funds: income that can be spent at the discretion of the trustees and the related expenditure. For example, letting income, private music tuition and school meals.
  • Restricted general fund: income that can only be spent on certain purposes plus the related expenditure. Most commonly GAG income, pupil premium and other DfE revenue grants.
  • Restricted fixed asset fund: income to be spent for particular capital purposes. For example, DfE capital grants and the value of assets transferred on conversion. The most common expenditure included under this heading is depreciation. It is often a very big number because the value of a leasehold interest and the buildings is required to be depreciated.

What do the pension numbers mean?

There is not space in this article to go into full detail on this topic but in summary there are normally two pension schemes included in the accounts for an Academy Trust. The first is the teachers’ pension scheme. This is something called an unfunded scheme and is accounted for on a pay as you go basis – i.e. the payments in the year are accounted for as expenditure in the accounts. The second scheme is the Local Government Pension Scheme. This is accounted for as a defined benefit pension scheme which means that the calculated asset, or more commonly, liability at the year end is included on the balance sheet. This is the number that Trustees often get concerned about as it is normally very large and is a liability. Whilst Trustees are rightly concerned about future annual costs, it is very unlikely that any Trust would be required to pay this liability number in one go. Parliament has agreed that in the event of the closure of a Trust any outstanding liability would be met by the DfE.

Where can I see the real surplus or deficit for the year?

That is a difficult one! Different trustees look at this in different ways. You could look at the “net income/expenditure” line on the Statement of Financial Activities. This excludes any movement on the pension scheme but still includes depreciation and the pension scheme finance charge which are normally big numbers. So, you could choose to add these back. Other trustees will look at the cash flow statement which reflects the actual cash in and out for the year. In a MAT, many trustees find a well hidden note towards the end of the funds note useful. This is the “Total Funds Analysis by Academy”, shows the individual school balances this year and last year and therefore whether each school has made a surplus or deficit.

Academy Trust financial statements can be extremely complex and there is not space here to go into full detail on the many aspects of the document. However please let us know if you would like further information from us to aid your understanding.