It seems not long since we finished the 2023 financial reporting cycle, but we've entered the final term of school, and the 2024 year-end is fast approaching.
Key changes in the 2024 Academies Accounts Direction
The Education and Skills Funding Agency (ESFA) recently issued its 2024 Academies Accounts Direction (AAD) edition. The good news is that there is little change. Most of the updates to the AAD are clarifications of existing areas, but here are some of the small number of more significant changes you need to know:
Enhanced Governance Statement
The wording for the Governance Statement in the annual accounts now requires Trustees to conclude whether the academy trust has an adequate and effective governance, risk management and control framework.
Previously, trustees only needed to describe the extent of the review and the areas that informed the review.
The DFE has been critical of the adequacy of reporting in the Governance Statement, and by forcing Trustees to put their necks on the line here, the ESFA is potentially looking at ways to ensure that the review process is thorough, robust and adequately articulated in the financial statements.
If Trustees conclude that deficiencies exist, they must say so and set out an improvement plan.
Accounting Officers – a checklist for peace of mind
The 2024 AAD has refreshed a list of sources that Accounting Officers might use to inform them when formally making their statement on regularity and propriety in the financial statements.
The list is intended to be guidance rather than exhaustive, but Accounting Officers may find it helpful to use as a checklist to work through in the Autumn term. Annotation of the review of the list and filing in a safe place, is a way of helping Accounting Officers evidence that a sound review process has been followed, delivering some peace of mind at the same time. See section 2.57 of the 2024 AAD for more details.
Valuation of school buildings
Interestingly, the new 2024 AAD now includes a suggestion aligning with a widely-held view that the DfE school building valuations that Trusts are regularly sent are not necessarily a suitable basis for use in Academy Trust accounts.
Although these DfE valuations were rarely available when Trusts initially accounted for a school transferring in, the previous version of the AAD cited these DfE valuations as a possible source of information for this purpose.
It was often disconcerting for Finance Officers to receive a DfE valuation for a school wildly different from the carrying value in the accounts. The subtle change in the AAD this year provides some comfort that when this happens, it doesn’t necessarily mean that the accounts are wrong, although it is still worth checking the assumptions against those used in your accounts if there is a big difference.
Our view remains that obtaining a professional third-party valuation of schools transferring in, commissioned specifically for the Trust's annual accounts, is the best way that management and trustees can be comfortable that their accounting is robust - rather than trying to shortcut or save costs by using a valuation carried out for another purpose.
Disclosures and presentation
The AAD includes a new set of model accounts and has helpfully highlighted the changes from the previous version. These changes are relatively modest and are available here.
Improvement areas
The ESFA has again highlighted themes from its review of Academy Trust reporting in the past year. The themes are broadly unchanged from those in previous years. They include problems of late reporting, inadequate internal scrutiny, too much reliance on the AAD templates resulting in boilerplate reporting, and the failure of some trusts to follow up on auditors' management letter points.
Although most Trusts will look to refine their 2024 reporting process outside of the ESFA’s assertions to make it as efficient as possible, improving the process is not necessarily straightforward in the face of resource challenges, both internally and within some audit firms too.
The Academies Accounts Return (AAR) still seems more cumbersome than it could be for many Academy Trusts. The standard chart of accounts has helped to a degree, and those Academy Trusts that can complete the returns as the accounts are signed off in the Autumn, rather than tackle them in January, benefit from completing the exercise when relevant information is relatively fresh in mind. This timing must be the aim for trusts that have yet to achieve a pre-Christmas sign-off of the AAR.
Armstrong Watson
Armstrong Watson provides audit and related services to the Academy sector and can help advise on sound governance and financial reporting matters, as well as taxation, cash flow forecasting and management of cash balances. For further information, please contact Karen Rae (North West and Scotland), Simon Turner (North East), or Steve Williams (Yorkshire).
