Key changes to the Academy Accounts Direction 2021-22

Rebecca Crowther,  Senior Manager

We outline what the key changes are to the Academy Accounts Direction (AAD) 2021-22:

  • how do the changes in the AAD reflect the current trends are in the sector?
  • what impact will the changes have on your financial statements at 31 August 2022?
  • what action can you take now to prepare for the 31 August 2022 year end?


Consolidation in the sector

The sector is going through a phase of ‘consolidation’ - leading to heightened scrutiny over governance, reporting and management.

  • The AAD notes that the Trustees Report and Governance Statement should be relevant and reflect the Trust’s performance and circumstances in the year – meaning that the text should be tailored to suit your Trust (not just taken from the model accounts), should be updated for the current year, and should be consistent with the external audit report and internal scrutiny report.
  • There are also some common omissions noted which include: lack of detail around governance reviews; lack of clarification on how effective oversight has been maintained where the board have met less than 6 times in the year; lack of detail on the frequency of internal scrutiny activity; and non-disclosure of both the salary and name of staff Trustees.
  • With more and more Trust entities becoming dormant under the Companies Act 2006 definition (following consolidation to other Trusts), the AAD now states that Trusts are no longer required to submit dormant accounts to ESFA. However, such entities will still have obligations under company law until such times as the entity is legally wound up.
How does this impact you?
Ensure that the Trustees Report and Governance Statement are reviewed and updated ahead of the start of the audit process, allowing for sufficient time for this to be reviewed internally and challenged by the audit team. 

Trading subsidiaries

Trusts are under increasing pressure to be able to generate income and help support the financial position of the Trust - with trading subsidiaries helping to separate the core operation of the Trust and any other income generating activity.

  • Trading subsidiaries, until this point, have been covered by the Trust’s funding agreement and Academy Trust Handbook. The Framework & Guide for External Auditors this year states that these documents ‘do not apply to a subsidiary of an academy trust’. However, this clarification does come with a word of warning. Transactions between the Trust and subsidiary will still be covered by regularity, and any funds passed to the subsidiary by the Trust still need to be spent on the purposes intended by the Trust.
  • With this clarification of the rules, the AAD has also been updated so that the organisational structure set out in the Trustees Report must also refer to any subsidiaries, joint ventures and associates; and has also clarified that the process of managing conflicts of interests also now covers subsidiaries, joint ventures and associates.

How does this impact you?
If you already have a trading subsidiary, ensure that adequate controls are in place around transactions between the parent and subsidiary to meet the requirements of the regularity regime. If you don’t have a trading subsidiary but think that this is an avenue worth exploring, ensure that all factors are considered before setting this up – from VAT, corporation tax, governance, systems, and financial benefit. A trading subsidiary may not be the right solution for you.

Building programmes

The Government in currently investing in building programmes which aim to give greater capacity and will help move towards more energy efficient, sustainable buildings.

  • The AAD refers specifically to the Priority Schools Building Programme (PSBP) whereby the site is managed by the DfE, and construction costs are funded by the DfE. Only when control of the site is handed over to the Trust should a value be recognised in the financial statements as the building is ‘donated’ to the Trust. If the Trust is partly funding construction on the site these costs should be shown as assets under construction until the point the completed asset is handed over.

How does this impact you?
If you have a government funded building project ongoing (PSBP or other), ensure that this is discussed during the planning stages of the audit to agree the relevant accounting treatment of this.

Other updates of note

Other updates or clarifications of note are:

  • The requirement to disclosure all Severance payments (which includes contractual payments, statutory payments and special staff severance payments) in bands of £25,000
  • The encouraged provision of narrative to support numerical disclosures where a Trust is subject to service concession arrangements and are committed to such payments such as PFI arrangements
  • The clarification that the Trust retains the liability for business rates even where a Trust has opted into the new billing arrangement for rates (from 1 April 2022). Therefore, the Trust will need to gross up the value of GAG received by the value of their business rates bill(s).
  • The removal of the requirement to provide separate trading accounts for teaching school (hubs) as separate notes to the financial statements. However, where the transactions relating to the activity are deemed to be material, then they should be shown as a separate line(s) on the face of the SOFA and analysed in the relevant notes to the accounts.

Overall, the changes to the AAD for the 2021-22 year have not been unexpected. They are reflective of the position that the sector is currently in, and reflective of where the focus of the ESFA is currently at. We also note that the ESFA does not intend to issue a further supplementary bulletin for 2021-22.

The financial statements for the year ended 31 August 2022 will therefore look very similar to that of the prior year in terms of presentation but expect continued challenge around the content of your Trustees Report and Governance Statement.

We will be exploring the trends noted above at our Academies Conference at Sixways, Worcester on 9 June 2022.

We will be joined by a range of guest speakers to discuss topical issues facing the sector and it would be great to see you there for our first face-to-face discussion group since the start of the pandemic. You can register for the event here.

If you require any further advice on any of the above, please contact Rebecca Crowther, or your usual Crowe contact.

Contact us

Dave Darlaston
Dave Darlaston
Partner, Audit