Academies Accounts and Audit Workshop. Catherine Biscoe and Hugh Swainson

Transcription

1 Academies Accounts and Audit Workshop Catherine Biscoe and Hugh Swainson

2 Agenda Legal requirements and reporting framework Financial statements Narrative reports Primary statements Notes to the accounts Audit requirements and common issues

3 Reporting framework Academies are exempt charities and companies limited by guarantee Accounts comply with Charity, Company and DfE requirements Charity Statement of Recommended Practice - SORP 2005 Companies Act 2006 EFA Accounts Direction ( Coketown Academy model accounts) 2 Accounts Directions 2014/15 Implementation based on when the Academy incorporated 2005 SORP v 2015 SORP

4 Future reporting framework FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (effective from 1 January 2015) New Charity Statement of Recommended Practice SORP September 2014 transition date Year ending 31 August 2015 comparative period Accounts Direction 2015/16

5 Narrative statements Reference and administrative details Trustees report (incorporating a Strategic Report) Governance statement Statement on regularity, propriety and compliance Statement of Trustees responsibilities Independent Auditor s report on the financial statements Independent Reporting Accountant s report on regularity

6 Statement of financial activities Incoming resources Resources expended Transfers Other gains and losses Funds reconciliation Restricted versus unrestricted - Restricted general & restricted fixed assets

7 Statement of financial activities - Income Incoming resources from generated funds Voluntary income includes: Private sponsorship Donated fixed assets Other donations Transfer of net assets from the Local Authority on conversion to Academy status

8 Statement of financial activities - Income Incoming resources from generated funds Activities for generating funds includes: Fundraising events such as jumble sales, fireworks displays and concerts Hire of facilities Catering income (per Coketown Academy) Investment income includes: Incoming resources from investments assets, including dividends, interest and rents Where an academy has subsidiaries, all payments to the charity by its subsidiary

9 Statement of financial activities - Income Incoming resources from charitable activities Sale of goods or services as part of the direct charitable activities DfE/EFA grants (including capital grants) Other Government grants Other educational income Income from boarding provision (if applicable)

10 Statement of financial activities - Expenditure Cost of generating funds Costs of generating voluntary income Fundraising trading Costs of managing investments Any other costs of generating income

11 Statement of financial activities - Expenditure Cost of charitable activities Should provide an understanding of the nature of the activities undertaken For most academies charitable activities are normally just totalled as one heading - Academy trust s educational operations Also boarding provision costs, if applicable The notes should identify the breakdown of these costs between direct costs and support costs

12 Statement of financial activities - Expenditure Governance costs Costs associated with the governance arrangements of the academy trust Relating to the general running of the academy as opposed to those costs associated with fundraising or educational activity Normally includes internal and external audit, legal advice for trustees and costs associated with constitutional and statutory requirements e.g. the cost of trustee meetings and preparing statutory accounts Included within this category are any costs associated with the strategic as opposed to day to day management of the academy's activities

13 Statement of financial activities Gains and losses which include Gains and losses on fixed assets (rarely used as most academies include fixed assets at cost/do not revalue on a regular basis) Gains and losses on investments assets (rarely used as few academies have investment portfolios) Actuarial gains and losses on defined benefit pension schemes (FRS 17)

14 Fund Accounting Restricted General Fixed assets (capital) Unrestricted Designated General Free reserves Endowment

15 Balance Sheet Fixed assets Current assets Current liabilities (Creditors < 1 year) Creditors > 1 year Pension scheme liability/asset FRS 17 Funds

16 Balance Sheet Fixed assets Tangible fixed assets Land and buildings freehold & leasehold Furniture and equipment Computer equipment Motor vehicles Investments Held for long term financial return Investments in subsidiaries

17 Balance Sheet Current assets Stock Debtors Trade debtors Amount due from subsidiary undertakings Prepayments and accrued income VAT recoverable Other debtors Cash at bank and in hand

18 Balance Sheet Creditors < 1 Year Trade creditors Taxation and social security EFA creditor abatement of GAG (if applicable) Other creditors Accruals and deferred income Deferred income reconciliation required & explanation Creditors > 1 Year Loans from EFA under Condition Improvement Fund Loans inherited from LA predecessor school on conversion Loans from Salix

19 Balance Sheet Pension liability Local Government Pension Scheme Assessed each year by the actuaries (FRS 17 report) Balance sheet shows net position Notes to the accounts show the movements in year

20 Cash Flow Statement Required by the EFA for all academy trusts Format of statement and notes provided within model accounts

21 Accounting policies and notes to the accounts Accounting policies Use Coketown Academy as a model Must be a policy included for all material items Guidance on capitalisation limits

22 Notes to the accounts General Annual Grant Dependent on requirements of Funding Agreement Statement on whether there has been a breach or not of GAG carry forward rules Staff costs Further split of expenditure Average number of employees during the year (FTE basis) Bandings (over 60k) Including taxable benefits Excluding pension contributions Non-statutory/non-contractual staff severance payments

23 Notes to the accounts The following items should be disclosed in aggregate, any transactions over 5,000 should also be disclosed individually Ex-gratia compensation payments Gifts made by the academy trust Losses on fixed assets, stock or bad debts Guarantees, letters of comfort and indemnities Acquisition or disposal of freehold or leasehold land and buildings

24 Notes to the accounts Governors remuneration and expenses Disclosure of the salaries in 5,000 bands of the Principal and Staff Governors (if they are also Trustees/Directors of the academy trust) Related party transactions Restricted funds Detail supporting each column in the SOFA and descriptions Boarding trading account Pensions TPS and LGPS

25 AD update (SORP 2005 version) Governance statement Governance review Value for Money statement Buildings occupied by Church academies Staff costs Staff severance payments Pension contributions Financial reporting Donations Loans and long term creditors Risk Protection Arrangements

26 SORP 2015 Plain English on the SoFA Comparatives for all funds Governance costs now a support cost Uncertainties in going concern assessment Key estimates and judgements Key management personnel disclosures Capital grants moved to donations and capital grants Computer software within intangible assets

27 Audit - introduction Overview of audit requirements Key areas of accounts and audit preparation Common issues Multi-academy trusts

28 Audit requirements Financial statements audit opinion True and fair view Prepared in accordance with UKGAAP Compliance with EFA Accounts Direction Consistency with governors report Conclusion on regularity AAR conclusion

29 True and fair view Risk of error In preparation of financial statements; In underlying records (see audit assertions); Presentation and disclosure Risk of fraud Audit assertions Accuracy Classification Completeness Existence Ownership Cut off Valuation

30 The big 3 Internal control environment Financial reporting environment Audit preparation

31 Internal control environment Culture set from the top Risks actively managed Established systems and processes Clear delegated authority and ownership including payroll and budgeting

32 Financial Reporting environment Clear chart of accounts Reconciliations and processes (Semi) automated financial reporting Clear and transparent financial analysis Internal scrutiny

33 Audit preparation Schedules and spreadsheets Cross checking and review Disclosures and analysis (NB: What if Buzzacott assist with accounts prep?)

34 Accounting processes

35 Year end preparation Financial reporting processes Bank, VAT, trade debtors and creditors, PAYE, other control accounts Accruals and prepayments Fixed assets FRS 17 journal (annual) Additional year end information Fund analysis Additional disclosures: Remuneration, ex-gratia/gifts, losses etc AAR disclosures (counter party etc)

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37 Preparing the accounts Completeness of year end audit journals Mapping the trial balance to the accounts Additional schedules for accounts and audit

38 Income GAG income SBS, minimum funding guarantee, education services grant, allocation protection, pre-16 high need funding, post-16 high needs funding NOT pupil premium and start up grants Income recognition: Classification and cut-off Grants paid for year to 31 August included Grants paid for year to 31 March apportioned (e.g. pupil premium) Capital grant when receivable

39 Income reconciliation TB Coding School Budget Share Minimum funding guarantee Education services grant Allocation protection Pre-16 high need funding Post-16 high needs funding Start-up grants Pupil Premium Capacity building grant Schools Direct SEN Devolved formula capital ACMF Capital Grant Classification GAG GAG GAG GAG GAG GAG Start-up EFA Other EFA Other Other Gov Other Gov Other Gov EFA Capital EFA reconciliation TOTAL EFA remittances X Deferred from 13/14 (pupil premium?) X Opening accrual (X) Deferred to 15/16 (pupil premium) (X) Accrued income X TOTAL EFA funding Y Split between: GAG X Start up grants X Capital grants X Other X Y

40 EXPENDITURE ANALYSIS Accounts Direction headings TB codes

41 EXPENDITURE ANALYSIS Accounts Direction headings TB codes

42 Other year end analysis schedules Both financial statements and AAR Expenditure analysis Staff costs analysis Staff costs reconciliation to payroll Pension analysis Fixed asset register (reconciliation) Debtors and creditors analysis (inc accruals/prepay) FRS 17 pension working Other fund accounts

43 Fund accounting Types of restricted fund: GAG Other EFA (pupil premium, start up, capital) LA Other restricted, etc In year accounting Year end allocations Transfers Fixed asset Pension

44 Consolidation Single trial balance or separate Aggregation (single legal entity) Consolidation (separate legal entities) Aggregation / consolidation approaches Software Columnar based Excel approach

45 Consolidation Academy 1 Trial Balance Academy 2 Trial Balance Academy 3 Trial Balance Central Office TB Other Trial Balance Academy Trust Total Subsidiary Company TB Aggregation Adjustments Consolidation Adjustments (x) (x) (x) (x) (x) x (x) (x) x (x) (x) (x) (x) (x) (x) - (x) (x) - (x) (x) (x) (x) (x) (x) - (x) (x) - (x) (x) (x) (x) (x) (x) - (x) (x) x (x) (x) (x) (x) (x) (x) - (x) (x) - (x) (x) (x) (x) (x) (x) - (x) (x) - (x) (x) (x) (x) (x) (x) x (x) (x) - (x) (x) (x) (x) (x) (x) - (x) (x) - (x) (x) (x) (x) (x) (x) x (x) (x) x (x) x x x x x - x x (x) x x x x x x - x x - x x x x x x (x) x x - x x x x x x - x x - x x x x x x (x) x x (x) x x x x x x - x x - x x x x x x - x x (x) x x x x x x - x x - x Consolidated Total

46 Consolidation key considerations Regular inter-company balance reconciliations Elimination of double counting Opening balances Accuracy of methodology Journals during the audit process

47 FRS 8: Related party transactions Accounting standards Definitions: Control or significant influence Key management, governors, close family members, organisations that the above control/influence Charity SORP Academies Financial Handbook At cost requirement Academy Accounts Direction Additional information (arms length)

48 Going concern and reserves policy Reserves policy and disclosures Forecasts Factoring in know changes (capital, income changes, expenditure changes) Financial KPIs Staff costs ratio Other? Multi-academy trusts Organisational changes Pooling of reserves

49 Millions Pension LGPS 3 2 Staff cost 1 Investment cost Actuarial gains Obligaitons Assets Net TPS Disclosures

50 FRS 15: Tangible fixed assets Capital vs. revenue Capitalisation of tangible fixed asset Risks and rewards of ownership Cost or valuation Depreciation rates Useful economic lives Fixed asset register Include all fixed assets in financial statements Additions and disposals (including AFH requirements) Check over the existence of assets

51 VAT, taxation and PAYE Employment tax exposure on using freelancers Costly Employer s NIC changes with contractedout status going from April 2016 Care when hiring out facilities if not within the Academy s objects could be taxable trading Running nurseries are not deemed to be primary purpose trading where children < 3 years old Property works may have an unintended VAT cost depending on plans and future usage

52 Regularity, propriety and compliance Regularity: For the purposes intended by Parliament Propriety: Standards of conduct, behaviour and corporate governance maintained when applying funds Compliance: With the terms of the funding agreement (including Academies Financial Handbook)

53 Regularity common audit issues 119 regularity qualifications 2013/14 or 4.6% (2012/13, 83 or 3.7%) Internal controls Related party transactions not at cost Severance payments not sought prior approval Finance leases Fraud or theft Financial procedures out of date or not in line with actual practice Lack of approval of relevant transactions (section 2.4 of handbook)

54 Regularity 2014 Academies Financial Handbook Compliance with the handbook Documented procedures Accounting officer s statement Audit obligation Understanding of academy s controls (and checks) Review of relevant transactions Review of supporting evidence Self assessment checklist

55 Multi-academy trusts New MATs Growing MATs Established MATs

56 Multi-academy trusts New MATs Governance including audit committee Central services Regularity: Policies and procedures Financial reporting: Accounting system Aggregation Fund accounting Budgeting AAD financial statements disclosures for MATs

57 Multi-academy trusts Growing MATs Development of central office Infrastructure investment (e.g. management structure) Inter-company Tax and VAT Risk management Internal monitoring and assurance

58 Internal control 3 lines of defence

59 Multi-academy trusts Established MATs Change management Financial strategy Aggregation - methods Control environment and internal monitoring Central office audit Fund accounting Buildings arrangements

60 Questions