Publication of the Academies Accounts Direction 2022 to 2023

The Academies Accounts Direction 2022 to 2023 (the Direction), along with the associated model accounts and auditor guide was published by the Education and Skills Funding Agency (ESFA) on 26 April 2023.

There are no new requirements, although clarification on existing requirements has been provided. As has been the case for several years, there is also feedback to the sector on areas for improvements in compliance.

School Buildings’ Safety Risk and the Impact on the Academies Accounts Direction

The greatest number of changes in this year’s Direction relate to clarifications in respect of estates management. This is in response to the risks affecting the safety of school buildings that have been identified by the Department for Education (DfE).

This change affects disclosures in the narrative elements of the annual report and financial statements as follows:

• The trustees’ report on principal risks and uncertainties should consider those risks impacting on trustees’ responsibilities to ensure the trust’s estate is safe, well maintained and complies with relevant regulations. 
• Clarification that the review of value for money statement encompasses estates safety and management. 
• Accounting officers should consider demonstrating how they have effectively used relevant funding to ensure the trust’s estate is safe, well-maintained, and complies with relevant regulations, as one of their value for money examples.  
• Clarification that the statement on regularity, propriety and compliance encompasses estates safety and management.

Whilst the ESFA has clarified that it does not require reporting accountants to perform any additional procedures regarding compliance with estates safety and management requirements, auditors and reporting accountants will still need to review these disclosures to ensure they are consistent with their understanding of the trust and other information in the report.

Auditors may also need to consider compliance with building safety regulations when carrying out work to comply with the requirements of ISA (UK) 250A.

Updated Feedback on Non-compliance 

Auditors should pay particular attention to paragraphs 1.21 and 1.22 of the Direction, which outlines the key areas of non-compliance identified by the ESFA through their assurance work.

Many of these findings relate to the narrative in the trustees’ report and other information and is consistent with the findings from Mercia file reviews of academy audit files.

The ESFA identifies the causes of these issues as arising from trusts copying text from the model accounts; not updating the text from the previous year; or that there are inconsistencies within the report or between it and other documents, such as the audit findings report or internal scrutiny report.  

Particular areas identified by the ESFA as requiring specific attention are as follows: 

• When describing the organisational structure in the trustees’ report section on structure, governance and management, ensure information is included in relation to any subsidiaries, joint ventures and associates.
• In the governance statement:
  • ensure there is adequate information relating to the governance framework for the audit and risk committee;
  • ensure there is an adequate description of the processes in place to manage conflicts of interest in the academy trust. These processes should extend beyond requiring declarations of business interests;
  • ensure that processes in place to manage conflicts of interest, for any subsidiaries, joint ventures or associates, are included; and
  • ensure there is an explanation as to why the academy trust chose a particular option for delivering internal scrutiny.

• In the note to the financial statement covering related party transactions, trustees remuneration (Note 12 in the model accounts), trusts should remember to make any relevant disclosures and to disclose the name of any staff member who is also a trustee.

We remind audit firms of the requirements of ISA (UK) 720 to ensure that the narrative report is consistent with the financial statements. Firms should be reading the narrative reports and documenting their review.

Other Clarifications 

The other clarifications made in the Direction this year are as follows, along with details of where academy accountants and auditors should be alert to the broader impact on the financial statements, regularity assurance engagement, audit process or associated arrangements: 

• There is specific guidance on how trustees should use the Direction. It is not expected that all trustees will have a detailed understanding of the technical accounting requirements but reminds them to seek support from their chief financial officer to ensure they have sufficient understanding to fulfil their financial reporting responsibilities
• Trustees are reminded of the importance of ensuring there is sufficient coverage in the event of the departure or long-term absence of key signatories, including the accounting officer. The Direction explains that the board should decide what interim arrangements are required to ensure the trust always has an accounting officer.
  
  In situations where the accounting officer leaves before the accounts are signed, there should be sufficient briefing and / or information to enable the new accounting officer to understand the key issues in the previous year and to avoid delays in signing the accounts
• Guidance has been provided to remind trusts to consider whether any loans they have should be classified as concessionary loans under the Charities SORP. Such loans will either be recognised at fair value or at the amount advanced, less any repayments. Additional disclosures are required for concessionary loans in line with Charities SORP paragraph 21.43
• Trusts are reminded of the need to separately disclose material income sources in he disclosure of funding for the academy trust’s operations (Note 4 in the model accounts). Whilst the majority of funding comes from the DfE and ESFA in the form of GAG (which must be disclosed separately), other material funding must be separately listed in this note
• When disclosing staff costs by activity, the Direction confirms that teaching assistants are considered support staff, rather than teaching staff. For trusts that have previously recorded these costs in the teaching staff category, there may be a need to reclassify amounts in the comparative to ensure there is comparability between different financial years.

What should I do next? 

If you act for academies, you should familiarise yourself with the updated guidance. 

Begin conversations with academy clients regarding changes that they will need to make in order for you to prepare or audit their accounts efficiently.