Late July brought a further update from the ESFA, this time in the form of the Academies Accounts Direction 2019 to 2020 Supplementary Bulletin.
So, what is this? Well, the Update Bulletin is an update to the Academies Accounts Direction 2019 to 2020 (AAD 2020) and so has the same status as the AAD 2020. It essentially provides some additional guidance and information for trustees, accounting officers, chief financial officers and external auditors on matters arising from the COVID-19 pandemic which may impact on the 2019/20 year-end accounts and the external audit and regularity reports.
The full bulletin can be found here.
So, what’s the impact of the Supplementary Bulletin for the year end trustees’ report and accounts?
Regularity reporting considerations
One of the key aspects expected in the Supplementary Bulletin was around the regularity assurance work we will need to undertake.
The good news is that the Supplementary Bulletin states that the scope of our regularity assurance work remains unchanged. However, it does make it clear that our regularity work should cover any specific COVID-19 related income and expenditure. The ESFA have not been particularly prescriptive in the approach they expect us to take in relation to COVID-19 related income and expenditure, setting out that it should be left to our judgement, as the auditors, as to the level of work we need to complete.
That said though, the ESFA have made it clear that they would expect payments to suppliers under the Procurement Policy Notes 02/20 and 04/20 (PPN’s) to be within the scope of our regularity testing.
When considering the specific regularity assurance procedures we should complete, the main factors we are likely to consider, as set out in the Supplementary Bulletin, are:
- Capacity: How much impact was there on the academy in terms of operations, control arrangements and governance? Where alternative procedures were required, were they reasonable and practical under the circumstances?
- Proactivity: When were the issues identified by the academy and was it before or after guidance or advice provided by the ESFA? Was advise sought from professional advisors or other academies?
- Reaction: Did the academy take retrospective or redressive action after an event (if appropriate)?
- Evidence: Does the academy have a full documentation trail around the decision-making progress, including the details of the rationale and people involved?
The real key aspect here is the last point around retaining a documentation trail of the academy’s decision-making process, as this will not only demonstrate an appropriate process has been followed, which will include value for money considerations, but it will be a key aspect of the evidence we look at as part of our regularity assurance procedures.
In terms of COVID-19 related income, the Supplementary Bulletin doesn’t really set out anything prescriptive here either. Our main focus therefore will be in line with the normal regularity assurance procedures expected around income, which will focus on whether any such income claimed (such as under the Coronavirus Job Retention Scheme or the Exceptional Costs scheme) has been used for the purposes intended. This will include looking at the eligibility for the funding in line with the respective funding requirements. As such, it will again be vital that academies keep full details of the rationale for claiming any such funding and the evidence to supporting those claims.
Trustees’ report considerations
Whilst the Supplementary Bulletin does not introduce any new requirements for the trustees’ report, it does set out the ESFA’s expectation around what trustees should be reporting in terms of the impact COVID-19 has had on the academy.
What’s clear from this guidance is that in reporting on the academy’s activities and achievements for the year, it is expected there will be significant mention of the impact of COVID-19 on the academy’s activities and operations.
Other specific areas the Bulletin gives suggestions for focusing on include:
- The financial impact and implications for the academy, including any impact on the going concern assessment of the academy.
- The impact on the academy’s fundraising activities.
- The impact on staff, volunteers and the academy community.
- The impact on the academy’s reserves policy and level of reserves, and whether specific funds will need to be set aside to meet expected future commitments.
- The impact of virus control measures in the academy’s future operating periods.
There’s also reference to some specific guidance produced by the Charity Commission on the financial reporting implications of COVID-19. The guidance is relevant to academy trusts, as charitable companies, and so should be considered as well when compiling the trustees’ report.
Governance statement considerations
While not specifically addressed in the Supplementary Bulletin, the trustees and accounting officer will also need to consider the impact of COVID-19 when compiling the governance statement. This is particularly the case in terms of governance arrangements during the outbreak, including any changes required in the academy’s normal governance arrangements, as well as changes in key internal control processes.
A further aspect of the governance statement is in terms of value for money, and the Supplementary Bulletin does make it clear the accounting officer must reflect on cases where PPN’s have been applied within their value for money statement. The accounting officer will need to explain any situations where COVID19 has adversely impacted on the academy being able to achieve value for money.
Again, it will be vital that academies keep full documented details of the rationale for any decisions made, which will need to include specific value for money considerations.
Accounts disclosure considerations
The impact on the academy’s accounts disclosures are relatively minor.
Basic accounting principles should be followed in relation to the recognition of COVID-19 related income and expenditure. This effectively means that any additional COVID-19 related funding claimed would be recognised as income where the key income recognition criteria are met (namely, where it’s probable it will be received and where the amount can be reliably determined). This will need a little bit of caution, especially in relation to the “other” category of any exceptional costs funding claimed, as these will be subject to further scrutiny and assessment by the ESFA. In reality though, most of the specific COVID-19 related funding will have been received by year end or soon after, so it will be clear what amounts should be accrued for at year end.
Where an academy has recognised additional government COVID-19 related grants, such as under the CJRS or the exceptional costs scheme, these will need to be disclosed separately in the notes to the accounts as “exceptional government funding”. This disclosure will also require some narrative as to why the funding was claimed / received and the nature of the costs it was claimed against. There is no requirement need to split out the costs incurred separately in the notes to the accounts, but this may be something some academies want to do for further transparency.
Where an academy has received any other COVID-19 related funding from other sources (such as from charitable trusts or specific fundraising appeals), then this will also need to be disclosed separately in the notes to the accounts as “other coronavirus funding”. This will again require some narrative around the purpose of the funding.
What’s clear from this is that academies will need to ensure they keep accurate details of all COVID-19 related funding claimed and received, from whatever source, as well as the details of the COVID-19 related expenditure the funding was claimed against.
Whether academies want to also disclosure separately the total additional expenditure they have incurred in relation to COVID-19, including those costs not specifically covered under the exceptional costs funding, will be something for academies to consider with their auditors, but it may well provide further transparency around the overall financial impact it’s had.
There you have it!
Overall, the impact on academies year-end accounts is relatively minimal but the guidance around the trustees’ report does provide a really good opportunity for trustees to explain exactly what impact COVID-19 has had on their academy and what actions they have taken to deal with it, covering educational, operational, financial and governance considerations. It’s therefore worth considering what you want to say and report on in the trustees’ report sooner than later!
As ever, if you have any questions on any of the details included in this update or just want more information, guidance or advice in relation to your academy, then please contact any of our academy sector specialists – Nick Simkins, Simon Atkins, Andy Jones, Glen Bott, James Taylor or Sarah Chambers.