The ESFA has recently published an overview of its key findings from their 2022 to 2023 assurance programme. This programme included a review of academy trust financial statements, academy funding audits, financial management and governance reviews, the School Resource Management Self-Assessment Checklist and the Educational Recovery Grants. Below we have covered some of the key findings from the financial statement and financial management reviews.
Review of academy trust financial statements
In our experience it is relatively rare that an audit report on Academy Trust’s financial statements is modified. Our experience was reflected in the ESFA research which found that the percentage of qualified audit reports for 2021 to 2022 was 0.2% (2020 to 2021: 0.5%) and the reasons for these modifications was related to the Local Government Pension Scheme valuations and the accounting treatment of land and buildings.
ESFA also found that there was a 0.4% increase in ‘emphasis of matter’ or ‘material uncertainty’ opinions. This increase was predominantly due to those trusts reporting an ‘emphasis of matter’ or ‘material uncertainty’ opinion due to financial health concerns. However, the main reason for the emphasis of matter opinions (75% of all cases) was going concern because the trust had closed or proposed to close within the following 12 months. In this scenario a material uncertainty is to be expected because and auditor will be required to modify the opinion if the plan is to close a trust following a merger. The wording of this modification will explain that this is not indicative of a financial problem with the Trust.
The percentage of modified regularity opinions on the 2021 to 2022 financial statements was much higher at 8.1% (2020 to 2021: 7.9%). We have considered the reasons for this in more detail below.
Financial statements regularity opinions
Perhaps unsurprisingly, the highest number of reasons for modified regularity opinions on 2021 to 2022 financial statements related to internal financial reporting. This was the same in the previous year. The key reasons for this comprised:
After internal financial reporting the second highest number of modified regularity opinions was in relation to related party transactions. Related party transactions are a complicated area and is one that trust financial teams can struggle with partly due to the complexity of the rules but also because they are often made aware of transactions at a late stage. The key issues arising were:
Now that the financial statement preparation and audit process for 2023 to 2024 is largely complete it is a good time to consider the issues arising from this process, management letter points raised and general improvements to the financial reporting process. If you would like to discuss these matters or any of the issues arising from the ESFA review further, then please get in touch with our Education team here.