Date posted: 21st Apr 2022
What has changed in the Academies Accounts Direction?
For the second consecutive year, the Academies Accounts Direction has been split into three – the AAD, alongside a model set of accounts and a more detailed framework and guidance for external auditors.
- Clarification that an academy trust should describe the organisational structure of any subsidiaries, joint ventures, or associates within their trustees’ report.
- New section to the governance statement which requires academy trusts to explain how conflicts of interest are managed.
- New disclosure requirement on severance payments to reflect changes in guidance published by HM Treasury. This does not change the existing disclosure on special staff severance payments.
- Updated the guidance on service concession arrangements, such as PFI.
- New guidance on how to account for buildings being constructed by the DfE or the local authority and transferred to the trust on completion.
- New section to provide guidance on the accounting treatment for business rates effective from 1 April 2022.
- Removed the previous requirement to submit dormant accounts to ESFA.
- Removed the requirement to produce trading accounts for teaching school (hubs) as separate notes to the financial statements. Clarification on where and how transactions relating to such activities should be shown in the rest of the financial statements. Guidance extended to cover other types of hub which academy trusts may operate.
Education white paper
The white paper for England, which was issued in March, is the first in six years.
As expected, one of the main themes is an expectation that by 2030 all schools will be in or moving towards a multi-academy trust. To help enable this, the Department will allow councils to create their own Multi Academy Trusts (MATs).
The white paper notes that trusts typically start to develop central capacity when they have more than 10 schools. It is perhaps not surprising then that the report says that ‘we expect that most trusts will be on a trajectory to either serve a minimum of 7,500 pupils or run at least 10 schools’.
Whilst not setting an upper threshold on how big a trust can grow to, the paper states that they ‘will limit the proportion of schools in the local area that can be run by an individual trust’. There seems to be a possible conflict between this and allowing councils to create their own MATs which by definition will be in one geographical area.
The whitepaper also sets out an ambition to develop a set of statutory academy trusts standards. Strong trusts, says the DfE, will be those that offer high-quality and inclusive education; have effective school improvement and workforce development alongside deployment strategies; robust strategic governance; and strong financial management.
Changes to lease rules
Given the stipulation that academies cannot generally borrow monies without the Secretary of States approval, over the years a number of clients have asked our advice on whether a contract is an operating lease or a finance lease. Operating leases being fine, but finance leases being a big no no.
A new accounting standard – IFRS 16 – leases came into force on 1 January 2019 for those entities following international standards. This accounting standard, treats finance leases and operating leases in the same way bringing the asset and related liability on to the Balance Sheet, so operating leases become borrowings!
Academies follow the Academies Accounts Direction (AAD) which is based on the Charity SORP/UK GAAP rather than international standards. UK GAAP is reviewed at least every five years. The latest review started last year and is not due to be implemented until January 2024. Therefore, initially this new standard (IFRS 16) appears to have no impact on the sector in the near future – wrong!
The National Audit Office raised the impact of the standard on the academy sector within its ‘Communication with Academy Trust Auditors 2021’. Within the document it stated ‘IFRS 16 is expected to be effective in 2022/23 for the SARA (sector annual report and accounts), with anticipated impact on the accounts’. The SARA is the consolidation of all academy trust accounts and therefore due to its size it will in due course have to follow IFRS16.
We believe that the likely implication for academies is that they will have to provide additional information in the AAR. Our current expectations are that the first time this will be required will be in the 2022/23 return. In the first year there may also be a requirement to provide data for previous accounting periods. We will continue to monitor and advise you as more information becomes available.
There is another significant change which will impact on academy trusts from 1 September 2022. Irrespective of whether the contract is an operating lease or a finance lease the secretary of state has consented to the following, meaning that leases on the list do NOT need to be submitted to the department for approval:
- All existing leases already in place by 1 April 2022 (maintained schools) and 1 September 2022 (academies)
- IT equipment
- Telephony
- Catering equipment
- Furniture
- Bathroom/sanitary equipment
- Gym equipment
- Grounds keeping equipment
- Minibuses and other vehicles for the use of the school
- Temporary classrooms and equivalent structures
Conversely operating leases for items NOT on the above list will not be able to be entered into after 1 September 2022 without the Secretary of State agreement.
Many will be watching the list to see, whether there is any guidance as to what is included under each heading, for example is a photocopier included under ‘IT equipment’ or ‘furniture’ or an excluded item? Furthermore, whether the list is expanded to include say energy efficient measures.
Filing deadlines
As always, it is imperative to be aware of all appropriate filing deadlines.
- The NNDR claim from is open for 2022 to 2023. The deadline is 22 May 2022.
- The summer school census should be completed by the end of May 2022.
- The unaudited End of Year Certificate (EOYC) needs to be submitted via the Employer Portal by 31 May 2022.
- Trusts must submit their audited financial statements to Companies House within 9 months of the end of the accounting period which is 31 May 2022.
- The BFR3Y online form will be available 21 June 2022 and must be completed and submitted by 26 July 2022.
- The audited End of Year Certificate (EOYC) needs to be received by Teachers’ Pensions by 30 September 2022.
- The land and buildings collection tool online form will be available 4 October 2022 and must be completed and submitted by 8 November 2022.
If you have any questions, do not hesitate to get in touch with the academies team here.
