Accounts Direction Handbook 2014 to 2015

Accounts Direction Handbook 2014 to 2015

Effective for all Colleges’ financial statements for periods ending on or after 31 July 2015

Summary

The Accounts Direction Handbook (the Handbook) is a document commissioned by the AoC in partnership with the College Finance Directors Group (CFDG) which provides advice for Colleges and their auditors on the way in which they can complete their 2014/15 financial statements.

The Handbook provides advice on the implementation ofthe accounting policies set out inthe 2007 Statement of Recommended Practice: Accounting for Further and Higher Education (the 2007 SORP) and the Accounts Direction for 2014 to 2015 Financial Statements issued jointly by the Skills Funding Agency and the Education Funding Agency (EFA).

The Handbook has been prepared in the light of the following objectives:

  • to be a one-stop guidancedocument that Colleges can refer to when completing their financial statements.
  • to provide further clarification to Colleges on completing the members’ report (or “Operating and Financial Review”) and the accounts to the financial statements.

The Handbook is not official guidance but designed to assist College financial professionals, auditors and reporting accountants with their work.Extracts from this publication may be reproduced for non-commercial educational or training purposes, on condition that the source is acknowledged and its contents are not misrepresented.

This Handbook supersedes the Accounts Direction Handbook published for the 2013/14 financial statements.Any section highlighted in yellow is new.

This will be the last year in which the Accounts Direction Handbook will be presented in quite this format because next year will see the introduction of a new Further and Higher Education SORP which will interpret the new Financial Reporting Standard, FRS102, that will apply to colleges.The Handbook has been developed over more than ten years. If you have any queries or comments, please ask or

April2015

Contents

Chapter 1: Summary

Chapter 2: The Development of Accounting Policies for the Further Education Sector

Chapter 3: The Statement of Recommended Practice: Accounting for Further and Higher Education 2007

Chapter 4: Casterbridge College Example Financial Statements

Chapter 5: Guidance on the Preparation of the Members’ Report and Notes to the Financial Statements

Chapter 6: Detailed Guidance on Specific Topics

Chapter 1: Summary

Contents

paragraph number

Purpose of the Handbook

Executive Summary

1: Introduction1.1

Financial Supervision of Colleges1.5

Revisions to Accounting or Auditing Guidance1.6

Documents to be Submitted1.7

Guidance1.12

Approval of Reports and Financial Statements1.13

2: Updates to the Accounts Direction Handbook1.15

3: Other Guidance

Arrangements for adjustment to payments against Funding Agreements
Adult Skills Budget1.17

Deadlines1.18

Accounting treatment for adjustments to payments under the Adult Skills

Budget in the 2014/15financial statements1.20

Audit Opinion 2014/151.22

Going Concern and Impairment Reviews1.25

Introduction

1.1.The purpose of this Handbook is to provide guidance on the preparation of Colleges’ financial statements for the year ending 31 July 2015 and to identify issues that will require consideration for future years. This Handbook supplements the 2007 Statement of Recommended Practice: Accounting for Further and Higher Education(the 2007 SORP) and the Accounts Direction for 2014 to 2015 Financial Statements issued jointly by the Skills Funding Agency and the EFAand supersedes the Handbook published for the 2013/14 financial statements.

1.2.In publishing this guidance, the CFDG and the AoChave consulted with College financial statements auditors, the Skills Funding Agency and the EFA.

1.3.The accounting policies and guidance set out in this handbook for the sector are applicable to all Colleges, regardless of their size, constitution or complexity. The policies and guidance are not applicable to external institutions, private training providers or other public bodies in receipt of learning and skills sector funding.

1.4.Accounting policies need not be applied to immaterial items. Guidance on the determination of what is material may be found in TECH 3/08 Guidance on materiality in financial reporting by UK entitiesissued by the Council of the Institute of Chartered Accountants in England and Wales.

Financial supervision of Colleges

1.5.Colleges which are now formally designated as Sixth Form Collegesare subject to financial supervision by the EFA, an executive agency of the Department for Education. The remaining Colleges are subject to financial supervision by the Chief Executive of Skills Funding (the Skills Funding Agency).The EFA and Skills Funding Agency are referred to in this document as the “responsible funding body” as appropriate.

Revisions to Accounting or Auditing Guidance

1.6.All extant accounting standards that are relevant to the sector have been included within this Handbook as appropriate. For completeness this includes all standards up to and including:

  • FRS 30 Heritage Assets
  • UITF Abstract 48 Accounting Implications of the replacement of the retail prices index with the consumer prices index for retirement benefits
  • anddoes not include FRS 100 to 102, which will not be applicable to the accounts for the FE sector until financial years ending on 31st July 2016.
  • FRS 102 and the new FEHE SORP (2015) will only apply for the 2015/16financial statements and onwards and must not be adopted early.

Documents to be Submitted

1.7.The following should be submitted to the responsible funding body no later than 31 December 2015. For FE Colleges this will be the Skills Funding Agency and for Sixth Form Colleges, the EFA:

  • audited financial statements (including the regularity assurance opinion) of the College and its subsidiaries (where applicable) for the year ending 31 July 2015 (electronic copy of signed financial statements)
  • Finance Record for the year ending 31 July 2015 signed by the Accounting Officer of the College (electronic copies for signed version and unsigned Excel version)
  • financial statements auditor’s management letter, including the College’s response (electronic copy only)
  • Annual report of the Audit Committee (electronic copy).
  1. The funding bodies do not require Colleges to submit hard (paper) copies of any of the above documents.
  2. In accordance with Charity Commission guidance, all Colleges must make their Annual Reports and Accounts available on their websites, and are required to do so by the Accounts Direction for 2014 to 2015 financial statements by 31st January 2016.
  3. Financial statements auditors are reminded that where they are unable to express an unqualified opinion on the College’s financial statements, they should immediately communicate this to the Accounting Officer, the Chair of the Corporation and the Chair of the Audit Committee. They should also inform the appropriate funding body. Auditors of general FE Colleges should contact the Director of Provider Finance at the Skills Funding Agency and the equivalent at the EFA.
  4. Electronic copies for the year ending 31 July 2015 should be submitted to the responsible funding body via e-mail at the address shown below no later than 31 December 2015:

Skills Funding Agency:

The EFA will confirm their email address in due course.

Guidance

1.12.Colleges with queries on how to apply this guidance on accounting policies to the particular circumstances of their own College may wish to consult their professional advisors or the responsible funding body.

Approval of Reports and Financial Statements

1.13.The reports and financial statements must be approved by the Corporation. They should be signed and dated as follows.

  • The members’ report must be signed and dated by the Chair of Governors on behalf of the Corporation.
  • The balance sheet(s) must be signed and dated by the Accounting Officer and one other member of the Corporation, usually the Chair of Governors.
  • The Statement of the Responsibilities of the Members of the Corporation must be signed and dated by the Chair of Governors.
  • The Corporate Governance and Internal Control statement must be signed and dated by the Chair of Governors and the Accounting Officer.
  • The Statement on Regularity, Propriety and Compliance must be signed and dated by the Chair of Governors and the Accounting Officer.
  • The above items should normally be signed on the same date. They should also be signed on or very shortly before the date on which the College’s financial statements auditors sign and date their audit report.

2: Updates to the Accounts Direction Handbook

1.15.The Handbook will only be re- issued to Colleges when substantial changes have occurred since its last publication. Latest versions of the Handbook will be published onthe AoCwebsite at:

When the Handbook undergoes a substantial update Colleges will be notified to visit the websites and download the latest versions.

1.16.Any other amendments to the Handbook will be issued as an addendum as required and colleges will be notified accordingly.

3: Other Guidance

Arrangements for the adjustment to payments against Funding Agreements

Guidance for providers on how to make Skills Funding Agency claims for 2014/15 is available on the Skills Funding Agency’s website at This should be read in conjunction with Update which is produced by the Skills Funding Agency and is a weekly round up of business critical information andnewsfor the sector.

16-18 learner-responsive funding is not normally subject to reconciliation and is therefore not subject to contract adjustments.

Adult SkillsBudget

1.17.At the date of publication of this Handbook, the Skills Funding Agency has stated that in order to support the choices made by learners and employers, there will not be any automatic tolerance applied to final funding claims(subject to de minimus limits) nor automatic payment for over delivery.

Deadlines

1.18.The Skills Funding Agency expects all providers receiving an Adult Skills budget to comply with the deadline for all returns set out in Table 2 below.

1.19.In order to meet the returns timetable set out in Table 2, Colleges must ensure that their final funding claims and final ILR data are shared with auditors in time for them to be able to meet the return timetable.

Table 2: Deadlines for returns

Funding model / Deadlines for returns
Mid year funding claim / 9 February 2015
Year end funding claim / 16September 2015
Final Claim / 27 October 2015
Final Audit reports / 27 October 2015
As specified by the responsible funding bodies on an individual provider basis. Where requested, all audit reports on individual funding claim returns must meet the claim return deadlines set out above.

Source:Funding claims 2014 to 2015 (November 2014)

Accounting treatment for adjustments to payments under the Adult Skills Budget in the 2014/15 financial statements

1.20. As noted in paragraph 17 above, at the date of publication of this Handbook, it is the intention that underperformance against the Adult Skills Budget will be subject to claw-back for any underperformance in excess of £1,000 (the de minimus limit).

1.21.Any reduction in the College’s 2014/15 recurrent allocation made after 31 July 2015 should be shown as a creditor due within one year in the College’s 2014/15 financial statements.

Audit Opinion 2014/15

1.22.Guidance on the form and content of the 2014/15 “true and fair” audit opinion can be found in Chapter 4 of this guidance, along with the (updated) specified regularity assuranceopinion.

1.23.Where the true and fair audit opinion is included on the College’s website with the audited financial statements, the College should ensure that the statement of Governing Body's responsibilities clearly:

  • states the Governing Body's responsibility for the maintenance and integrity of the website
  • refers to the fact that uncertainty regarding legal requirements is compounded as information published on the Internet is accessible in many countries with different legal requirements relating to the preparation and dissemination of financial statements.
  • Where the College decides not to update the statement of Governing Body’s responsibilities for the above, then it should ensure that the true and fair audit opinion shown on the website includes the following words:

The maintenance and integrity of the [name of college] website is the responsibility of the Governing Body of the College; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Going Concern and Impairment Reviews

1.25.Where Colleges and/or their financial statements auditors have concerns about the appropriateness of the value of assets or the use of the going-concern basis for the preparation of accounts, they should contact the relevant funding body.

Chapter 2: The Development of Accounting Policies for the Further Education Sector

Contents

Paragraph number

Statement of Recommended Practice: Accounting for Further and Higher
Education 2007 2.1

Articles of Government 2.5

Preparation of Financial Statements for Audit 2.6

New UK GAAP 2.8

Statement of Recommended Practice: Accounting for Further and Higher Education2007

2.1For all accounting periods commencing on or after 1 August 1999 all Colleges have had to prepare their financial statements in accordance with the requirements of the Statement of Recommended Practice: Accounting for Further and Higher Education(the SORP). The SORP was revised in 2003 and 2007. The current (2007)SORP is the primary document to be followed by Colleges and that in accordance with FRS 18.58, any departure from the provisions of the SORP should be explained in the financial statements. For ease of reference, a link to the 2007 SORP is provided in this Handbook at Chapter 3.

2.2The SORP is intended to apply to all Colleges, including voluntary aided sixth-form colleges, voluntary controlled sixth-form colleges and specialist designated institutions. Where these bodies are constituted as companies limited by guarantee they should follow the SORP with any additional disclosures required to comply with the Companies Act 2006.

2.3As the FE and higher education (HE) sectors have special financial and reporting issues that are different from other organisations that have charitable status, the Further and Higher Education SORP takes precedence over the Charities SORP. Where a College is a registered charity and seeks clarification on the basis on which to prepare its accounts, then it should discuss its position with its financial statements auditors and the relevant funding body.

2.4The Accounting Standards Board (ASB - now subsumed into the Financial Reporting Council (FRC)) wishes to see the continuance of a high-quality SORP for the further and higher education sectors. To meet this objective, the then LSC agreed the following with the HE/FE SORP Board:

  • The Accounts Direction for Colleges will be published annually by the funding bodies and ensure that all relevant institutions in the further education sectors prepare financial statements on a comparable and consistent basis.
  • Additional disclosure requirements, such as corporate governance statements, are issued by individual funding councils.

Articles of Government

2.5The Skills Funding Agency sets the Accounts Direction to GFE Colleges under paragraph 21.1 of theFinancial Memorandum and the EFA for Sixth Form Colleges under paragraph 9.1 of the Funding Agreement for Sixth Form Colleges:

“...shall specify [his] requirements as to the information to be contained in the [College’s] financial statements and how they should be reported...”

Preparation of Financial Statements for Audit

2.6It is a duty of the members of the Corporation to present audited financial statements to the responsible funding body by the relevant date (for Colleges with a 31 July year or period end this will be 31 December i.e. five months after the year end).

New UK GAAP

2.7The Accounting Standards Board (ASB) of the Financial Reporting Council published on the 30th January 2012, financial reporting exposure drafts (FREDs) 46 to 48 setting out revised proposals for the future of financial reporting in the UK and Republic of Ireland. The exposure drafts were as follows:

  • FRED 46 ‘Application of Financial Reporting Requirements’ (draft FRS 100);
  • FRED 47 ‘Reduced Disclosure Framework’ (draft FRS 101); and
  • FRED 48 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (draft FRS 102).

2.8On the 22 November 2012, the FRC issued its first accounting standards under the new UK financial reporting regime:

  • FRS 100 Application of financial reporting requirements; and
  • FRS 101 Reduced Disclosure Framework

FRS 100 sets out the available reporting frameworks and how an entity works out which it must or may apply. The framework sets out three types of 'Companies Act accounts', i.e., those prepared using any of FRS 101; FRS 102; or the FRSSE.

Those companies that are required to apply EU-IFRS by law or regulation will continue to do so: the new framework does not impose EU-IFRS beyond the requirements of existing law and regulation but an entity may choose to adopt it. Such accounts are 'IAS accounts' as set out in the Companies Act 2006.

FRS 101 allows qualifying parent and subsidiary entities to apply the recognition and measurement requirements of EU-IFRS but with exemption from some of the disclosures. FRS 101 applies in the individual accounts only.

FRSs 100 and 101 apply for accounting periods beginning on or after 1 January 2015 but they may be adopted early with immediate effect. The Companies Act has been amended for periods ending on or after 1 October 2012 to allow companies a free choice to switch back to UK GAAP, so long as they have not previously done so in the last five years.

2.9The final part of the new UK GAAP, FRS 102 The financial reporting standard applicable in the UK and Republic of Ireland, was issued on the 5th March 2013. It is effective for accounting periods beginning on or after1 January 2015and must not be adopted early by GFE or Sixth Form Colleges.

This will mean that Colleges will produce full accounts under the new proposals in 2015/16. Until such time though, UK GAAP will continue to be applicable. The revised Education SORP 2015was approved on the 26th March 2014 and is available at .

2.10Initial guidance on the implications of FRS 102 and the 2015 SORP is included in section 6.183 onwards below.