Dry run Academy Sector Annual Report and Accounts 1
Sector Annual Report and Accounts for Academy Schools in England For the year ended 31 August 2015
This is a dry run report for the year to 31st August 2015. It is not being: - formally deposited in Parliament; or - formally audited or certified by Comptroller and Auditor General. This report contains various draft statements attributed to the Permanent Secretary, placeholders for a foreword attributed to the Secretary of State, and other explanatory comments. These are all identified “[ESC note]”. 21st October 2016
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Purpose and structure of this report
This report has been produced to inform Parliament about developments in the academies programme. Section 11 of the Academies Act 2010 places a duty on the Secretary of State for Education to prepare, publish and lay before Parliament an annual report on academies. The legislation requires the annual report to contain information on the academy arrangements entered into and the performance of academies during the year. In relation to performance, the annual report must contain information collected under regulations made under section 537 of the Education Act 1996 and under the contractual arrangements academies enter into with the Secretary of State for Education. For the financial years 2013-14 and 2014-15, the Comptroller and Auditor General (C&AG) provided an ‘adverse’ opinion on the DfE consolidated accounts. There was insufficient evidence that the required recognition criteria were met in respect of £33 billion of land and buildings assets. Further, there is a presumption under International Financial Reporting Standard 10 (Consolidated Financial Statements) that, in order to present a true and fair view, the date of the financial statements for subsidiaries consolidated into group accounts should be no more than three months different from the date of the group accounts. However, the majority of academy trusts were consolidated using their 31 August financial statements audited by academy trust auditors, a seven month difference in reporting date from the Departmental group. This led to the C&AG’s view that misstatement and uncertainty was so material and pervasive as to require an adverse opinion. This new combined sector report and accounts is prepared for the academic year, aligning the period of reporting for the sector with the reporting period of individual academy trusts. The new report fulfils the reporting requirements of the Academies Act 2010 with the requirement to report in the finances of the sector. Combining the annual report with the accounts will provide a holistic account of the sector. This report separates academy spending from that of the Department, clearly showing how academies receive resources and how they use them, and for the first time aligning the reporting of financial results with academic performance. This will make it easier for Parliament, parents and taxpayers to scrutinise and test the information within it. This report draws together more benchmarking information from academies, which will allow Parliament to track trends both in academy spending and performance. Parliament will have more relevant, accurate and useful information to assess performance and governance of the whole academy sector.
This report is structured to present:
The Accounting Officer’s perspective on performance
The annual report from the Secretary of State and
The accountability report and financial statements as presented by the Accounting
Officer.
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Contents
FOREWORD BY THE SECRETARY OF STATE 4
Preface by the National Schools Commissioner 5
2. ANNUAL REPORT 6
[ESC note: will be added in year 1, to cover 2015/16 academic year] 6
ACCOUNTABILITY REPORT 7
3. CORPORATE GOVERNANCE REPORT 7
4. REMUNERATION AND STAFF REPORT 15
5. PARLIAMENTARY ACCOUNTABILITY REPORT 18
6. CERTIFICATE AND REPORT OF THE COMPTROLLER AND
AUDITOR GENERAL 19
7. FINANCIAL STATEMENTS 20
Consolidated Statement of Comprehensive Income and Expenditure 20
Consolidated Statement of Financial Position 21
[Consolidated Statement of Cash Flows] 22
Consolidated Statement of Changes in Taxpayers’ Equity 23
NOTES TO THE ACCOUNTS 24
Accounting Policies 42
GLOSSARY OF KEY TERMS 53
4
Foreword by the Secretary of State
[ESC note: will be added in year 1, to cover 2015/16 academic year]
[Justine Greening MP] [Secretary of State for Education]
5
Preface by the National Schools Commissioner
[ESC note: will be added in year 1, to cover 2015/16 academic year]
[Sir David Carter] [National Schools Commissioner]
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2. Annual Report
[ESC note: will be added in year 1, to cover 2015/16 academic year]
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Accountability report
3. Corporate governance report
The purpose of this governance report is to explain the composition and organisation of applicable governance structures, and how they support the achievement of the objectives for the sector.
The academy sector is comprised of academy trusts, each of which is an incorporated company and an exempt charity.
Academy trusts are required to disclose details of their directors and trustees within their annual financial statements, which are published on each trust’s website following submission to the Education Funding Agency (EFA).
Register of interests
Academy trusts are required to maintain their own local register of interests. They must publish on their websites relevant business and pecuniary interests of members, trustees, local governors and accounting officers.
Accounting Officer’s declaration
As far as I am aware, there is no relevant audit information that has not been made available to the Comptroller and Auditor General. I have taken all appropriate steps to make myself aware of all relevant audit information, and to establish that the Comptroller and Auditor General is aware of that information.
[ESC note: This report is not formally audited]
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Statement of Accounting Officer’s Responsibilities
As the Principal Accounting Officer for the Department for Education, I am responsible for the Academy Sector Annual Report and Accounts.
As explained on page 2 [purpose and structure of this report], this is the first time separate financial statements have been presented for the sector. This report provides greater transparency on achievements for the academic year, and matches that to income and expenditure for the same period.
Under the terms of my appointment as Accounting Officer, I am also responsible for ensuring that appropriate systems and controls are in place to ensure that:
any grants that are made to the sector are properly accounted for and
academy trusts are properly accountable for the grants they receive, for other sources
of income, and for the expendture that this finances, including its regularity and
propriety.
These sector accounts are prepared on an accruals basis and must give a true and fair view of the state of affairs of the sector as a whole, and of its net resource outturn, application of resources, and cash flows for the academic year.
In preparing these accounts, I am required to comply with the requirements of the FReM and in particular to:
observe the Accounts Direction issued by HM Treasury, including the relevant accounting
and disclosure requirements, and apply suitable accounting policies on a consistent basis
make judgements and estimates on a reasonable basis
state whether the applicable accounting standards have been followed, as set out in the
FReM
disclose and explain any material departures from these standards in the accounts
prepare the accounts for the sector as a going concern
I can confirm that I have discharged my responsibilities appropriately.
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Governance Statement
As the Permanent Secretary and Principal Accounting Officer for the Department for Education, I am responsible for ensuring there is an adequate framework in place to provide assurance that all resources are managed in an effective and proper manner and that value for money is secured.
There is a clear chain of accountability from each academy trust, which has its own accounting officer, through the EFA, to me. The EFA and each academy trust are responsible for the maintenance and operation of the system of internal control of the sector as set out within the framework.
I confirm that I have reviewed the effectiveness of internal control arrangements in operation across the sector, through my review of EFA’s work in overseeing financial management and governance, drawing on information and assurances provided by academy trusts.
Governance structure
The sector operates under a strict system of accountability. The key features of this system are set out in the Department’s system accountability statement1.
Within this system, I have designed and implemented a robust governance framework. I have delegated specific responsibilities to both the Chief Executive of the EFA and to academy trusts.
These responsibilities are articulated within the Academies Financial Handbook (“the Handbook”)2.
Control framework at trust level
The sector is comprised of academy trusts, each of which is a public body, an incorporated company and an exempt charity.
Each academy trust has a direct funding agreement with the Secretary of State which sets out the conditions on which the trust receives funding, its responsibilities, and the Secretary of State’s intervention powers.
Academy trusts are responsible for:
ensuring the quality of educational provision;
challenging and monitoring the performance of the school;
overseeing the management of the trust’s finance and property;
overseeing the management of the staff;
ensuring the trust complies with charity and company law; and
operating in accordance with the Funding Agreement and the Handbook, including ensuring
1https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/396815/Accountability_Statement_.pdf January 2015 2https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/534147/Academies_Financial_Handbook2015.pdf July 2015
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that their accounts are reviewed by external auditors to provide an audit opinion and
conclusion on their regularity.
The Handbook covers all of the financial accountability requirements for academy trusts. It sets out the areas of HM Treasury’s Managing Public Money that directly apply to academy trusts. In addition the DfE’s Governance Handbook3 describes the elements of good governance that trusts must apply. These documents are updated annually to cover any changes to accounting practices, and to disseminate improvements to governance an financial management arrangements.
Academy trusts should make an annual assessment of their governance including a review of the composition of their Board - in terms of skills, effectiveness, leadership and impact - to ensure that the quality of governance remains high. The Governance Handbook identifies a range of training material to help academy boards do this and to engage fully with their role.
Each academy trust is required to appoint its own Accounting Officer, which should be the senior executive leader of the academy trust. Their role is to be accountable to Parliament, through me, for the financial resources under the trust’s control. They are required to be able to provide assurance on the management of public funds, particularly that:
there is efficient and effective use of resources in their charge (value for money);
public money is spent for the purposes intended by Parliament (regularity); and
appropriate standards of conduct, behaviour and corporate governance are maintained
when applying funds under their control (propriety).
I require them to sign a statement to this effect each year and submit it to the Department as part of the academy trust’s audited accounts.
Further to this, any new academy trust being formed is required to complete a Financial Management and Governance Self-assessment (FMGS) and submit it to the Department within four months of opening. This provides a self-assessment on the implementation of the Handbook requirements within the new trust. The FMGS is approved by the trust’s board of directors before submission, which provides accountability for the quality of the return.
Role of the EFA within the control framework
The EFA also publishes relevant information to enable auditors to carry out the effective audit of individual academy trust financial statements.
Throughout this year, the EFA has run many events and seminars with academy trusts and audit firms. September 2015 saw the second annual auditor workshop, which was attended by 90 firms (who between them are responsible for the audit of over 1,500 academy trusts).
The EFA works closely with the National Association of School Business Management (NASBM), the Association of School and College Leaders (ASCL), the Freedom and Autonomy for Schools National Association (FASNA) and others to improve the quality, competencies and capacity of academy personnel. This is one important way the DfE and
3https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/481147/Governance_handbook_November_2015.pdf November 2015
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the EFA can help trusts respond to the challenges and complexities of increased financial autonomy.
Work in this area includes:
hosting resources
issuing guidance material
providing training: face to face and remote
running events and workshops
hosting working groups
sharing best practice through the EFA/NASBM good practice library
setting NASBM professional standards.
The EFA works closely with Regional School Commissioners and other partners to make sure that academy expenditure secures better outcomes for pupils. The EFA intervenes in a timely and proportionate way to ensure trusts are in a strong position with regards to governance and financial management.
Assurance from academy trusts
The Companies Act places a requirement on academy trusts to appoint an auditor to certify whether the accounts present a true and fair view of the trust’s financial performance and position. The Handbook also requires the auditor to give a conclusion, addressed jointly to the academy trust and the Secretary of State, on whether any matters of irregularity have come to their attention and include this conclusion within the audited accounts.
Both of these requirements provide assurance of compliance with accounting practices and governance arrangements across the sector.
The Department requires each academy trust to submit their audited accounts to us by 31 December each year, covering the period ending 31 August. Academy trusts are required to publish their accounts on their website to assist financial transparency. Copies of the audited accounts will also be made available by Companies House following submission to them as required by the Companies Act. Figure 1 below shows the number of financial statements due and submitted for the academic year.
Figure 1 – Financial Statements due and submitted
Returns summary 2014 to 2015 2013 to 2014
Number of financial statements due 2,905 2,691
Number received by 31 December 2,736 2,476
% Submitted by 31 December 94.2% 92.7%
Submitted by 8 August 2,901 (99.9%)
Source: EFA / DfE records
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Independent auditors’ opinions on the financial statements
We use independent auditor opinions to provide assurance as to the level of validity and reliability of a company’s financial statements. The profile of audit opinions given is presented at figure 2 below.
Figure 2 – Number of audit opinions by type, AT accounts
Independent audit opinions on the financial statements
2014/15 2013/14
Unqualified 2,769 2,621
Unqualified but with Emphasis of Matter 92 36
Qualified 36 30
Disclaimer of Opinion 3 3
Adverse 1 0
Accounts not received 4 1
TOTAL 2,905 2,691
An unqualified opinion means that the auditor was able to confirm the financial statements to be materially correct with no significant matters to bring to the reader’s attention. In 2014/15, over 95% of academy trust financial statements received unqualified opinions.
We undertake a review of audit opinions in other categories and note a number of opinions which contain an ‘emphasis of matter’ or are qualified due to:
the land and buildings valuations. For the purposes of the sector accounts, these valuations are reviewed regularly in line with our accounting policy.
the trust not disclosing pay levels for staff governors.
concerns as to the ongoing financial viability of the trust.
The increase in ‘emphasis of matter’ statements reflects in part the Department’s advice to auditors to take a more rigorous approach to drawing trustees’ attention issues of financial challenge.
Based on a review of the accounts which contain a qualified audit opinion, we have not identified specific matters that materially impact the financial statements presented for the sector.
Independent auditors’ conclusions on regularity
Each academy trust includes an assurance report on regularity in its accounts, which provides limited assurance that the income and expenditure recorded by the trust is in accordance with the purposes identified by Parliament and allowable within the governance documents that academy trusts have to follow.
The table at Figure 3 below shows the number of assurance reports on regularity that comment ‘nothing has come to our attention’ or ‘except for’.
An “except for” finding means that the independent auditors found some element of income or expenditure that may have been outwith the permitted use. Examples of this include some missing evidence, for example, invoices to support purchases, or a failure to follow governance arrangements due to a trust not following its procurement policy for a particular contract.
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Figure 3 – Independent auditors’ conclusions on regularity
Independent auditors’ conclusions on regularity
2014 to 2015 2013 to 2014
Nothing has come to our attention 2,782 2,554
Except for 119 136
Accounts not received 4 1
TOTAL 2,905 2,691
Auditors concluded that nothing had come to their attention for over 95% of trusts.
EFA reviewed the exceptions raised for the remaining 5% of academy trusts. The areas that raised concerns included:
internal controls, including lack of independent checks of such systems
internal financial management or reporting
procurement processes
related party transactions or the “at cost” policy relating to goods and services purchased from
related parties.
The majority of the regularity exceptions reported were procedural and not related to specific transactions. They have no material impact on the financial statements presented for the sector.
Assessment and management of risk
From time to time, and at least annually, the Chief Executive of the Education Funding Agency will write to the Accounting Officers of academy trusts identifying key risks and issues for their consideration, including where appropriate highlighting changes that have been made to the Handbook. Trust accounting officers are required to share these letters with their directors, governors and senior leadership team.
Academy trusts have a key role in the management of risks. The Handbook places a requirement on trusts that they must be aware of the risk of fraud, theft and/or irregularity occurring and, as far as possible, address this risk in their internal control and assurance arrangements by putting in place proportionate controls. Trusts must take appropriate action where fraud, theft and/or irregularity is suspected or identified. The trust must notify the EFA as soon as operationally practical of any instances of fraud, theft and/or irregularity exceeding £5,000 individually, or cumulatively in any academy financial year. Any unusual or systematic fraud, regardless of value, must be reported.
[ESC NOTE: Next year we would intend to include commentary on any reported frauds in the sector]
Additional reviews undertaken by EFA
In addition to reviewing the assurance outcomes for academy trusts, the EFA undertakes a programme of additional targeted assurance work.
The EFA was able to give me substantial assurance as a result of this work, that there were no specific matters that would give rise to a material impact on the financial statements presented for the sector.
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Breaches of the Academies Financial Handbook
The EFA investigates reported breaches of the provisions of the Handbook.
Where the EFA has concerns about financial management and/or concerns about governance in an academy trust (including a multi-academy trust or constituent academies within a MAT) we may issue, and publish, a Financial Notice to Improve (FNtI). The trust must comply with all the terms of an FNtI as this is a requirement of the Handbook. In exceptional circumstances the funding agreement may be terminated due to non-compliance with the terms of the FNtI.
A FNtI sets out the actions EFA requires trusts to take in order to address underlying concerns about financial management, compliance and/or governance (financial or otherwise).
The EFA investigates reports of fraud and irregularity where relevant. It is in the public interest to be fair and transparent about issues relating to how public money is spent.
Reports on these investigations are available online at https://www.gov.uk/government/collections/academies-investigation-reports.
In 2014/15, EFA published investigation reports into the following academy trusts:
Cuckoo Hall Academies Trust (published 13 February 2015)
E-ACT (published 19 September 2014)
Park View Educational Trust (published 6 February 2015)
Phoenix Family of Schools Academy Trust (published 12 September 2014)
None of the concerns raised result in a material financial impact on the accounts presented for the sector.
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4. Remuneration and staff report
The Government Financial Reporting Manual (the FReM) ordinarily requires a remuneration report to be presented, consistent with the requirements of section 420 of the Companies Act 2006. Since the academy sector is not a corporate body, it does not have a separate board. So, instead we disclose below the distribution of remuneration in excess of £60,000 to trustees of academy trusts.
Each academy trust sets its own remuneration policy, taking account of their trust’s circumstances.
Figure 4 shows the number of trustees who received remuneration above £60,000, which matches the disclosure requirements for individual academy trust financial statements. Details of payments to trustees are available in the Annual Report and Accounts of the individual academy trusts. The remuneration shown below includes salary, bonus payments, benefits-in-kind, and excludes employer pension costs.
Figure 4– Number of trustees receiving remuneration in payment bands
Trustees (including principal/CEO where relevant) Total
Payments Received
£60,001-£70,000 595
£70,001-£80,000 449
£80,001-£90,000 378
£90,001-£100,000 352
£100,001-£110,000 274
£110,001-£120,000 186
£120,001-£130,000 129
£130,001-£140,000 66
£140,001-£150,000 47
£150,000+ 111
Total 2,587
Trustees can only receive payment/fees for their work in the academy trust as a teacher, teaching assistant or other member of staff. The majority of trustees are volunteers who do not work for the academy trust. The total number of trustees who donated their time is XXX in a total of XXX academy trusts. [ESC Note: This information is not available for the dry run].
A total of £ xxxx was reimbursed to xxx number of trustees for expenses incurred in carrying out their duties as trustees. [ESC Note: This information is not available in the dry run].
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There are a further c.6,280 school staff paid in excess of £60,000 who are not trustees. Of these, c.13 are paid over 150k. A high level of transparency is required of those receiving public funds. The names of trustees and other staff with remuneration above £150,000 per annum is presented at Annex X. [ESC Note: Next year, in addition, we intend to list the name of the trust, the name of the individual, and their remuneration (within £10k bands). This will be subject to a necessary process of communication with individuals, and due consideration of any individual concerns about the disclosure of this information]
The FReM requires the disclosure of the number of full time equivalent staff and the related costs. This information is shown in total for all academy trusts in figures 5 and 6.
Figure 5 – Staff Costs
Permanently
employed staff
2014 to 2015
Temporary Total
£000 £000 £000
Wages and
salaries
9,660,398 276,625 9,937,023
Social security
costs
693,696 15,989 709,685
Pension costs 1,562,086 34,696 1,596,782
Agency staff costs 343,405 343,405
11,916,180 670,715 12,586,895
Staff restructuring costs
45,758 5,839 51,597
Less recoveries in respect of outward secondments
(2,094) (28) (2,122)
Total staff expenditure
11,959,844 1,019,931 12,636,370
Figure 6 – Average Staff Numbers
[ESC Note: This information is not available in the dry run] Average staff numbers (full time equivalent):
Permanently employed Temporary staff Total full-time
equivalents (ftes)
Number Number Number
Teachers Other Classroom Staff
Other Total
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Figure 7 : Gender of permanent employees The split of male and female permanent employees at 31st August 2015 was
[ESC Note: This information is not available in the dry run]
Male Female Total
Trustees
Other (all non-trustee staff)
The number of days lost due to sickness absence was [ x days ] [ESC Note: This information is not available for the dry run] Consultancy and off payroll arrangements
During the year the academy trusts paid XX in relation to consultancy relating to advisory services. [ESC Note: details not available for the dry run] The academy sector paid £xx million in respect of off-payroll engagements during the year [ESC Note: details not available for the dry run]
Pension costs
Academy Trusts operate a range of pension schemes for their employees, dependent upon their role.
Local Government Pension Scheme (LGPS)
The scheme is a funded, multi-employer defined benefit pension scheme. The scheme is available to employees under 75 that work for an employer that offers membership and satisfy the membership criteria, typically non-teaching staff such as teaching assistants, secretaries and other administrative staff, maintenance and catering staff. The scheme’s administrators are able to allocate the scheme’s underlying assets and liabilities across the separate employers in accordance with IAS 19. Consequently, these sector accounts recognise a share of the scheme’s net asset surplus or deficit in the Statement of Financial Position.
Teachers’ Pension Scheme (TPS)
This scheme is open to teachers aged between 16 and 75 in pensionable service, employed by schools and a number of other institutions. It is an unfunded, multi-employer defined benefit pension scheme and consequently has no assets to apportion. In accordance with IAS19 contributions to the scheme are accounted for as if the scheme is a defined contribution scheme, with only contributions payable during the year recognised.
Contributions to the TPS are set at rates determined by the Secretary of State, taking advice from the scheme’s actuary. Further information about the scheme can be found in the Teachers’ Pension Scheme Annual Report and Accounts4.
Partnership pension accounts
There are a small number of other schemes operated by academies, that are not material to the sector as a whole. These are Defined Contribution schemes, and as such are reflected in the SoCNE figures. Given the quantum of these figures in relation to overall pension liabilities, no further detail is included on these schemes.
4 http://dera.ioe.ac.uk/24520/1/TPS_Annual_Report_and_Accounts_final_for_laying_web.pdf
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5. Parliamentary accountability report
This sets out how academies have spent the money voted to them by Parliament.
Parliament votes grant expenditure through the Supply Estimate process, which
operates on a financial year basis. It is clearly important to reconcile the grants paid by
the department – split across two financial years, 2014-15 and 2015-16 – with the grants
received by academy trusts during the academic year 2014/15, as reported in these
sector accounts.
[ESC note: Next year we will include “grant trackers” here, to show how we reconcile the grant the
department pays, as recorded in the department’s accounts, with the grant income that academies
report in their accounts, as aggregated in the sector account. The grant trackers will then go on to
compare these income figures – for both resource and capital – with the spending that academies
report, a different concept].
Academy population and reporting period
There were 96 academy trusts that incorporated between 1 March 2014 and 31 August
2014, and which also prepared their accounts for the period from incorporation to 31
August 2015. These results are included in the sector annual accounts to 31 August
2015. This means that where an academy’s accounts are prepared for a period greater
than one year5, the sector accounts for the year include results that relate to the prior
period. The estimated impact of reporting the financial results - that properly relate to the
2013/14 academic year - is that the that assets less liabilities and taxpayers’ equity as at
1 September 2014 are understated by £497m, and net comprehensive income in
2014/15 is overstated by £461m.
Conversely, there were 61 academy trusts that incorporated between 1 March 2015 and
31 August 2015 which will prepare their first set of financial statements to 31 August
2016. The financial results of these trusts are therefore excluded from the sector
annual accounts for this reporting period. The estimated impact of not reporting the
financial results that relate to these academies is that assets less liabilities and
taxpayers’ equity as 31 August 2015 are understated by £168m and net comprehensive
income in 2014/15 is understated by £168m.
The combined impact of the above is such as to understate assets less liabilities and
taxpayers’ equity as at 31 August 2015 by £168m, and to overstate net comprehensive
income for the year by £293m.
[ESC note: we plan to collect further information from academies in respect of 2015/16, to
reduce the scale of both these effects in the year 1 accounts.]
5 Companies are permitted in accordance with provisions of the Companies Act 2006 to prepare a long period of accounts.
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6. Certificate and report of the Comptroller
and Auditor General
[ESC note: the dry run is not subject to a formal audit. The Comptroller and Auditor General is reviewing this report and accounts, and will provide his views separately to the Committee]
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7. Financial Statements
Consolidated Statement of Comprehensive Income and Expenditure6
For the period ending 31 August 2015 2014/15 Note £000
Income Funding for educational operations 1A (15,860,670) Capital grants 1B (X) Donations 1C (X) Other income 1F (700,421)
A Total operating income (Sub-total)
Sector Operational Expenditure Staff costs 2 12,636,370 Operational Costs 3 X Depreciation and impairment charges 5 X
B Total operating expenditure Sub-total
C Net operating (income)/expenditure (A + B) (X)
Transfer of function Net gain on conversion of LA schools 27 (X) Net gain on conversion of non-LA schools
D Sub-total Transfer of function (X) E Investment Income 1G (13,484)
F Net income for the year (C + D + E) (Sub-total)
Other comprehensive net (income)/expenditure
Items which will not be reclassified net operating costs
- net (gain)/loss on revaluation of property, plant and equipment (X) - net (gain)/loss on disposal of assets X - net (gain)/loss on disposal of investments (492) - actuarial (gain) or loss on defined benefit pension scheme 17 X Other recognised gains and losses (X) (Gain)/loss as a result of prior period adjustment 5 (X) Movement in provision for liabilities and charges 6 1,697 Items which may be reclassified to net operating costs - fair value (gain) or loss on revaluation of investments 10 1,017
G Sub-total other comprehensive net (income)/expenditure (Sub-total)
H Net comprehensive income for the year (F + G) (Total)
[ESC Note: The entries marked “X” in this and subsequent tables require some further accounting adjustments, in order to produce the Year 1 (2015/16) opening balances.] All activities are continuing. There are no other gains or losses other than net income for the year. The notes on pages 24 to 52 form part of these accounts.
6 This statement shows sources of income and the nature of expenditure incurred in the year. An increase
in net assets arising from net comprehensive income is incorporated within the statement of financial position. Income is also reflected in the consolidated statement of cash flows. Net comprehensive income for the year is also presented in the statement of changes in taxpayer’s equity.
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Consolidated Statement of Financial Position7
As at 31 August 2015 2014/15
Note £000
Non-current assets:
Property, plant and equipment 7 X
Intangible assets 8 X
Financial assets 10 X
Receivables due after more than 1 year 12 13,276
A Total non-current assets X
Current assets:
Inventories 11 X
Receivables due within 1 year 12 X
Cash and cash equivalents 13 X
B Total current assets X
C Total assets (A + B) Total
Current liabilities:
Payables due within 1 year 14 (1,581,851)
Provisions not later than 1 year 16 (2,315)
D Total current liabilities (1,584,166)
E Total assets less current liabilities (C + D) Total
Non-current liabilities:
Payables due after 1 year 15 (X)
Provisions later than 1 year 16 (2,782)
Pension scheme deficit 17 (X)
F Total non-current liabilities (X)
G Assets less liabilities = Net assets (E + F) X
Taxpayers’ equity:
General fund X
Revaluation reserve X
H Total taxpayers’ equity Total
Accounting Officer XX June 2016
The notes on pages 24 to 52 form part of these accounts
7 The Statement of Financial Position, also known as the Balance Sheet, presents the consolidated
financial position of the sector at a given date. It is comprised of three main components: Assets, liabilities and equity.
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[Consolidated Statement of Cash Flows8] For the year ended 31 August 2015
2014/15
Note £000
Cash flows from operating activities
Net operating income
Adjustment for non-cash transactions
Gain on conversion of non-LA academies in-year
Gain on conversion of LA schools in-year
IAS19 pension scheme obligation inherited
IAS19 pension cost less contributions payable
IAS19 pension finance cost
(Increase)/Decrease in receivables
(Increase)/Decrease in inventories
Increase/(Decrease) in payables Use of provisions Adjustments for investing and financial activities Interest received Interest paid Profit/loss on disposal of assets
A Net cash outflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Purchase of investments
Proceeds of disposal of property, plant and equipment
Proceeds of disposal of intangible assets
Proceeds of disposal of investments
B Net cash outflow from investing activities
Cash flows from financing activities
Repayments of borrowing
Cash inflows from new borrowing
Capital element of finance leases
C Net cash inflow from financing activities
D Net increase/(decrease) in cash and cash equivalents in the period (A+B+C)
E Cash and cash equivalents at 1 September
F Cash and cash equivalents at 31 August (E+D)
[ESC Note: We are not able to supply this data for the dry run, but it will be provided for 2015/16.]
8 The consolidated cash flow statement presents the movement in the cash flows over the period as classified under operating, investing and financing activities. The statement is primarily linked to the balance sheet as it explains the effects of change in cash and cash equivalents balance at the beginning and end of the reporting period.
Dry run Academy Sector Annual Report and Accounts
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Consolidated Statement of Changes in Taxpayers’ Equity9 As at 31 August 2015
Note General
Fund Revaluation
Reserve Taxpayers’
Equity
£000 £000 £000
Balance at 31 August 2014 30,073,403 196,377 30,269,780
Comprehensive net income/(expenditure) for the year X - X
Revaluation gains and losses
Transfers between reserves
Balance at 31 August 2015 Sub-total Sub-total Total
9 This statement is directly related to statements of financial position, comprehensive income and expenditure. Changes represent the movement in equity reserves as reported in the statement of financial position at the start of the period and the end of the period.
Dry run Academy Sector Annual Report and Accounts
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Notes to the Accounts
1. Income 2014/15
£000
Funding for the academy trusts’ educational operations
DfE Group – general annual grant 13,361,554
DfE Group – pupil premium grant 738,824
DfE Group – other revenue grants 745,066
Special educational projects 365,067
Local authority grants 326,229
Other income from academy trusts' educational operations 323,930
A Funding for educational operations 15,860,670
Capital grants
DfE Group capital grants 1,060,564
Local authority capital grants 101,395
Other capital grants 15,728
B Capital grants 1,177,687
Donations
Capital donations X
Other donations X
C Donations Sub-total
Other trading activities
Catering income 187,757
Hire of facilities 92,298
Rental income 11,529
Other trading income 369,657
D Income from other trading activities 661,241
Provision of boarding activities
Fee income 36,823
Grants 840
Other income 1,517
E Income from boarding activities 39,180
F Other income (D + E) 700,421
Investments
Interest 7,215
Short-term deposits 3,699
Dividends 813
Other 1,757
G Income from investments 13,484
Dry run Academy Sector Annual Report and Accounts
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2. Staff costs
Permanently
employed staff
2014/15
Others Total
£000 £000 £000
Wages and salaries
9,660,398 276,625 9,937,023
Social security costs
693,696 15,989 709,685
Pension costs 1,562,086 34,696 1,596,782
Agency staff costs
343,405 343,405
11,916,180 670,715 12,586,895
Staff restructuring costs 45,758 5,839 51,597
Less recoveries in respect of outward secondments
(2,094) (28) (2,122)
Total staff expenditure 11,959,844 676,526 12,636,370
2.1 Staff exit packages
The table below shows the total number and cost of exit packages agreed by academy trusts during the reporting year.
Number of compulsory
redundancies
Number of other
departures agreed
Total number of exit
packages agreed
No. of cases
No. of cases
No. of cases
< £10,000
1,300
1,527
2,827
£10,001 - £25,000
511
927
1,438
£25,001 - £50,000
136
245
381
£50,001 - £100,000
16
24
40
£100,001 - £150,000
1
-
1
£150,001 - £200,000
-
2
2
Total number of cases
1,964
2,725
4,689
Total cost £000 19,269 32,292 51,561
Dry run Academy Sector Annual Report and Accounts
26
3. Sector operational costs 2014/15
Operational Costs £000
Premises costs 1,140,965
Educational supplies 605,246
Academies’ educational operations – other support costs 472,117
Catering 306,459
Academies’ educational operations – other direct costs 295,750
Technology costs 217,063
Examination fees 195,837
Staff related costs 185,281
Educational consultancy 105,547
PFI service charges 81,162
Rentals under operating leases 78,342
Security and transport 55,599
Legal and professional fees 52,561
Auditor’s remuneration and expenses - audit work 26,354
Auditor’s remuneration and expenses - other services 11,977
Governance costs 8,788
Interest charges 163
Other costs X
X
4. Expenditure reported in the revenue grant tracker
2014/15
£000
Staff costs (see note 2) 12,636,370
Operational costs (see note 3) X
Expenditure in the revenue grant tracker [ESC note: data to be added next year] X
5. Non-cash charges 2014/15
Non-cash charges £000
Depreciation X
Amortisation 1,505
Impairment X
Sub-total Sub-total
Gain/(loss) as a result of prior period adjustment (169,968)
Total
6. Movement in provisions
2014/15
£000
Increase in provision for liabilities and charges X
Provision unused and reversed during the year (X)
Total
Dry run Academy Sector Annual Report and Accounts
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7. Property, plant and equipment 2014/15
Land and buildings Leasehold
improvm’t Plant &
machinery Furniture & equipment
Computer equipment
Vehicles Assets under construction
Total
£000 £000 £000 £000 £000 £000 £000
£000
Cost or valuation At 1 September Transfers in (LAs) Transfers in (non-LA)
Additions Donations Disposals Impairments
Reclassifications Revaluations
At 31 August
Depreciation At 1 September Charged in year Disposals Impairments Reclassifications Revaluations
At 31 August
Carrying value at 31 August
[Asset financing - data currently not collected; intend to collect for 15/16 through accounts return]
Owned Finance leased On-balance sheet PFI contracts
Carrying value at 31 August
[ESC Note: This table will be populated once final accounting adjustments have been made, to produce the Year 1 (2015/16) opening balances.]
Dry run Academy Sector Annual Report and Accounts
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8. Intangible Assets 2014/15
Software Other Total
£000 £000 £000
Cost or valuation
At 1 September X X X
Transfers in (LA) X - X
Transfers in (non-LA) - - -
Additions X X X
Donations 2 - 2
Disposals (X) (X) (X)
Impairments - - -
Revaluations - - -
Reclassifications (914) - (914)
At 31 August 8,351 545 8,896
Amortisation
At 1 September (X) (X) (X)
Charged in year (1,429) (76) (1,505)
Disposals X - X
Revaluations - - -
Reclassifications 394 - 394
Impairment - - -
At 31 August (X) (X) (X)
Carrying value at 31 August X X X
[Asset financing
Owned
Finance leased
On-balance sheet PFI contracts
Carrying value at 31 August]
Dry run Academy Sector Annual Report and Accounts
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9. Financial Instruments International Financial Reporting Standard 7: Financial Instruments (IFRS7) disclosures
requires the sector to disclose information on the significance of financial instruments to
its financial position and performance.
9.1 Foreign currency risk All material assets and liabilities are denominated in sterling. There is no significant
exposure to currency risk.
9.2 Market risk There is some market risk in fair value investments held but the Department is unable to
quantify a value for the risk.
9.3 Financial assets by category: 2014/15 £000
Cash X Receivables X Non-current financial assets X Total XXX
9.4 Financial liabilities by category: 2014/15 £000
Payables X
Total X
Dry run Academy Sector Annual Report and Accounts
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10. Non-current Financial Assets 2014/15
Subsidiaries at
cost
Investment
property at cost
Other investme
nts at cost
Cash deposits
at fair value
Investment
property at fair value
Securities at fair
value
Managed
funds at fair value
Listed bonds/gilts at
fair value
Other investments at fair value
Total
£000 £000 £000 £000 £00
0 £000
£000
As at 1 September
775 96 24,363 48,669 - 19,817 26,77
9 7,119 7,355 134,973
Transfers in (LA)
- - - - 100 - - - - 100
Transfers in (non-LA)
- - - - - - - - - -
Additions 103 - 7,779 35,420 - 9,610 2,864 14,957 2,511 73,244
Disposals - - (14,288) (25,518) - (10,479)
(4,113)
- (67) (54,465)
Reclassifications
(750) 135 (2,092) 2,260 - - (5,85
7) 3,638 2,666 -
Fair value gain/(loss)
- - - - 10 (127) (658) - (242) (1,017)
Impairments - - - 22 - - 40 - - 62
As at 31 August
128 231 15,762 60,853 110 18,821 19,05
5 25,714 12,223 152,897
11. Inventories 2014/15 £000
Uniform 5,981 Catering supplies 1,066 Stationery 1,257 Other 1,416
Total 9,720
Dry run Academy Sector Annual Report and Accounts
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12. Receivables 2014/15
Sums falling due within 1 year £000
Trade receivables 68,061
VAT recoverable 201,918
Other receivables 156,141
Prepayments and accrued income X
Current part of PFI prepayment -
Total receivables due within 1 year Total
Sums falling due after more than 1 year
Trade receivables 257
Other receivables 11,457
Prepayments and accrued income 1,562
PFI prepayments over 1 year -
Total receivables due after more than 1 year 13,276
13. Cash and cash equivalents 2014/15 £000 Balance at 1 September - Net change in cash and cash equivalent balances 3,136,878
Balance at 31 August 3,136,878
The balances are held at:
Cash at bank and in hand: Commercial banks 3,138,408
3,138,408
Overdrafts: Commercial banks (1,530)
Bank overdraft included within payables (note 14) (1,530)
Dry run Academy Sector Annual Report and Accounts
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14. Payables due within one year 2014/15
Sums falling due within 1 year £000
Bank overdraft 1,530
Loans 10,248
VAT 2,496
Other tax and social security payables 197,398
Trade payables 395,973
Other payables 323,289
Accruals and deferred income X
Finance leases 659
Imputed finance lease element of on-balance sheet PFI contracts -
Total payables due within 1 year Total
15. Payables due after one year 2014/15
Sums falling due after more than 1 year £000
Loans 45,344
Other payables, accruals and deferred income 26,210
Deferred tax 5
Finance leases 4,668
Imputed finance lease element of on-balance sheet PFI contracts -
Total payables due after more than 1 year 76,227
16. Provisions for liabilities and charges
2014/15
Property Other Total
£000 £000 £000
Provision balance at 1 September 1,021 4,064 5,085
Additional charge in year 339 1,674 2,013 Provision utilised in year (217) (1,468) (1,685)
Provision unused and reversed during the year (45) (271) (316)
Balance of provision at 31 August 1,098 3,999 5,097
Not later than 1 year 471 1,844 2,315
Provisions later than 1 year:
Later than 1 year and not later than 5 years 583 683 1,266
Later than 5 years 44 1,472 1,516
Sub-total provisions later than 1 year 627 2,155 2,782
Balance of provision at 31 August 1,098 3,999 5,097
Dry run Academy Sector Annual Report and Accounts
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17. Pension Schemes
The sector operates a range of pension schemes for its employees. Of these, only the Local
Government Pension Scheme (LGPS) is open to non-teaching staff in academy trusts, and is a
funded multi-employer defined benefit scheme. This is therefore the sector’s only scheme for which
the scheme administrators can allocate the underlying assets and liabilities to the employing
organisations.
The LGPS is a single national scheme that is administered at a local level by fund units that in
many, but not all, cases approximate to local authorities. Whilst the scheme is national, funds
accrue benefits locally.
The scheme provides funded defined benefits based on final pensionable salary. The scheme
administrators hold assets separately from those of ATs and invest these assets in managed
funds. Employer contribution rates are determined by an actuary based on triennial valuations.
The Department procured valuations of all academy trusts' membership of the LGPS as at 31
March 2015. The Department procured valuations in accordance with IAS 19 from the four scheme
actuaries, AON Hewitt, Barnett Waddingham, Hymans Robertson and Mercer.
The employer pension contribution for 2014/15 is £512 million. Regular employer contributions for
2015/16 are expected to be [£xxx million]
The sums recognised in these accounts in respect of the LGPS are set out in the tables below.
[ESC Note: The figures in this note will change, to take account of final accounting adjustments, to produce the Year 1 (2015/16) opening balances.]
2014/15
£000
Amounts recognised in the statement of comprehensive income and expenditure
Current service cost 677,671
Past service cost or (gain) 1,463
Loss or (gain) on curtailments and settlements 3,872
Total operating charge 683,006
Analysis of pension income/(charge)
Expected return on scheme assets (228,634)
Interest on scheme liabilities 282,881
Pension finance income/(costs) 54,247
Analysis of amounts in other comprehensive (income)/expenditure:
Total actuarial (gains) or loss 73,508
Net (benefit) or cost 73,508
Dry run Academy Sector Annual Report and Accounts
34
2014/15
£000
Sums recognised in the statement of financial position:
Present value of defined benefit obligations 8,205,316
Fair value of scheme assets (4,458,389)
Pension liabilities recognised in the statement of financial position 3,746,927
Movements in the present value of defined benefit obligations:
Balance brought forward at 1 September 6,506,750
Transferred out on existing academies leaving the trust (56,176)
Transferred in on existing academies joining the trust 161,088
In-year conversion of academy trusts 595,936
Current service cost 677,671
Interest cost 282,881
Employee contributions 153,801
Past service cost 1,463
Unfunded pension payments (60)
Actuarial (gain) or loss (51,702)
Benefits paid (70,208)
Losses or (gains) on curtailments 3,872
At 31 August 8,205,316
Movements in the fair value of scheme assets:
Balance brought forward at 1 September 3,471,963
Transferred out on existing academies leaving the trust (27,563)
Transferred in on existing academies joining the trust 86,013
In-year conversion of academy trusts 228,666
Employer contributions 512,293
Employee contributions 153,801
Actuarial gain or (loss) (125,210)
Benefits paid (70,208)
Expected return on scheme assets 228,634
At 31 August 4,458,389
Reconciliation of net obligation:
Balance brought forward at 1 September 3,034,787
Transferred out on existing academies leaving the trust (28,613)
Transferred in on existing academies joining the trust 75,075
In-year conversion of academy trusts 367,270
Current service cost 677,671
Employer contributions (512,293)
Past service cost 1,463
Other finance income 54,247
Unfunded pension payments (60)
Curtailments 3,872
Actuarial loss or (gain) 73,508
At 31 August 3,746,927
Dry run Academy Sector Annual Report and Accounts
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[ESC note: Sensitivity analysis – data currently not available, but we plan to collect for 15/16]
Impact on the defined benefit obligation for changes of:
Discount rate +1.0%
Discount rate -1.0%
Mortality rate 1 year increase
Mortality rate 1 year decrease
Consumer prices index rate +1.0%
Consumer prices index rate -1.0%
The major categories of plan assets as a percentage of total plan assets are as follows:
Equities
Gilts
Corporate bonds
Property
Cash and liquidity
Other
Scheme assets
2014/15
£000
Defined benefit obligations (8,205,316)
Scheme assets 4,458,389
Deficit (3,746,927)
Expected return on assets 228,634
Actuarial gain or (loss) on assets (125,210)
Actual return on assets 103,424
[ESC note: data to be added next year] The major financial assumptions used in the valuation were:
2014/15
Rate of inflation
Expected return on plan assets
Rate of increase in salaries
Rate of return on pensions
Discount rate
2014/15
Difference between the expected and actual return on scheme assets (£000)
Percentage of scheme assets
Experience gains and losses on scheme liabilities (£000)
Percentage of present value of the scheme liabilities
Total sum recognised in other comprehensive expenditure (£000)
Percentage of present value of scheme liabilities]
Dry run Academy Sector Annual Report and Accounts
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18. Capital and Other Commitments
2014/15
Note Total
£000
Capital commitments 19 356,191
Commitments under leases:
Operating leases 20.1 618,740
Finance leases 20.2 6,948
Off-balance sheet PFI Contracts 21.1 723,023
Other financial commitments 23 57,893
1,762,795
19. Capital Commitments Contracted capital commitments at 31 August 2015 not otherwise included in these accounts.
2014/15
£000
Property, Plant and Equipment 356,049
Intangible assets 142
356,191
20. Commitments under leases
20.1 Operating leases The table below gives total future minimum lease payments under operating leases for each of the
following periods.
2014/15
Obligations under operating leases for the following periods comprise.
Land Buildings Other Total
£000 £000 £000 £000
Not later than one year 1,044 26,296 55,467 82,807
Later than one year and not later than five years 2,610 81,451 65,704 149,765
Later than five years 6,251 373,401 7,826 387,478
9,905 481,148 128,997 620,050
Recovered through sub-letting - (12) (1,298) (1,310)
Total 9,905 481,136 127,699 618,740
Dry run Academy Sector Annual Report and Accounts
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20.2 Finance leases The table below gives total future minimum lease payments under finance leases for each of the
following periods.
2014/15
Obligations under finance leases for the following periods comprise:
Land Buildings Other Total
£000 £000 £000 £000
Not later than one year 179 278 1,004 1,461
Later than one year and not later than five years 760 1,123 588 2,471
Later than five years 734 2,068 214 3.016
Less interest element
Present Value of obligations 1,673 3,469 1,806 6,948
Recovered through sub-letting - - - -
Total 1,673 3,469 1,806 6,948
21. Commitments under private finance initiative contracts 21.1 Off-balance sheet (SoFP) The table below gives the total future minimum payments under off-balance sheet PFI and other
service concessions arrangements for each of the following periods.
Obligations under off balance sheet (SoFP) Service Concessions for the following periods comprise:
2014/15
£000
Not later than 1 year 38,804
Later than 1 year and not later than 5 years 141,071
Later than 5 years 543,148
723,023
Dry run Academy Sector Annual Report and Accounts
38
22. Losses and special payments
22.1 Losses statement
2014/15
£000
[Total number of losses] -
5,745
22.2 Special payments
2014/15
£000
[Total number of special payments] -
5,284
23. Other financial commitments Non-cancellable contracts
2014/15
£000
Not later than 1 year 30,517
Later than 1 year and not later than 5 years 7,390
Later than 5 years 19,986
57,893
24. Contingent liabilities 2014/15
At start of period
Increase in period
Liabilities crystallis
ed in year
Obligation expired in
period
At end of period
Amount to
parliament by
departmental
minute
£000 £000 £000 £000 £000 £000
Contingent Liabilities 21 1,981 132 (1,043) 1,091 -
Total 21 1,981 132 (1,043) 1,091 -
Dry run Academy Sector Annual Report and Accounts
39
25. Related party transactions
2014/15
Value of payments to a related party Number of related parties
£0 to £50,000 1,741
£50,001 to £100,000 117
£100,001 to £150,000 47
£150,001 to £200,000 33
£200,001 to £250,000 15
£250,001 + 52
2005
2014/15
Value of payments from a related party Number of related parties
£0 to £50,000 533
£50,001 to £100,000 92
£100,001 to £150,000 31
£150,001 to £200,000 27
£200,001 to £250,000 17
£250,001 + 46
746
26. Entities within the group boundary All academy trusts, as established under the Education Act 2010, with open academies as at 31
August 2015 are entities within the sector. A list of all operational academy trusts and their open
academies is available on the department’s annual reports’ website10.
10 DFE Annual Reports - https://www.gov.uk/government/collections/dfe-annual-reports
Dry run Academy Sector Annual Report and Accounts
40
27. Transfer of academies
2014/15
£000
Non-current assets Property, plant and equipment 3,415,236 Intangible assets 9 Financial assets 100 Trade and other receivables -
3,415,345
Current assets Inventories 24 Receivables 7,441 Investment - Cash and cash equivalents 123,883
131,348
Current liabilities Payables (3,611) Other liabilities (1,003)
(4,614)
Non-current liabilities Payables (1,204) Provisions (8,877) Financial liabilities (4,083) Pension scheme deficit (367,480)
(381,644)
Net asset transferred on conversion 3,160,435
[Represented by: Transfers in from LAs Transfers in from non-LAs]
Dry run Academy Sector Annual Report and Accounts
41
When an academy transfers into the sector, it will transfer from elsewhere in the public
sector e.g. from local authorities, or from outside the public sector e.g. non-local authority
maintained schools. The accounting treatment is different for each, with public sector
transfers recognised in non-operating costs and those from outside the public sector
recognised in operating income.
28. Events after the reporting period
There are no significant events after 31 August 2015 known to the Department that affect
these accounts.
The accounting officer authorised these financial statements for issue on the date they
were certified by the Comptroller and Auditor General. These accounts do not consider
events after that date.
[ESC note: as indicated elsewhere, these statements are placeholders, as this dry run set
of accounts have not been formally authorised by the Accounting Officer, nor certified by
the Comptroller and Auditor General].
Dry run Academy Sector Annual Report and Accounts
42
Accounting Policies
[ESC note: in preparing the dry run, which covers 2014/15, we have anticipated as far as possible
the accounting policies that will be in place in 2015/16]
These accounts have been prepared in accordance with the 2015-16 Government Financial
Reporting Manual (FReM) issued by HM Treasury (HMT). The accounting policies contained in the
FReM apply International Financial Reporting Standards (IFRSs) as adapted or interpreted for the
public sector context. Where the FReM permits a choice of accounting policy, the accounting policy
which is judged to be most appropriate to the particular circumstances of the sector for the purpose
of giving a true and fair view has been selected. The particular policies adopted for 2014/15 are
described below. They have been applied consistently in dealing with items considered material in
relation to the accounts.
1. Accounting convention
These accounts have been prepared under the historical cost convention modified to account for
the revaluation of property, plant and equipment, intangible assets and investments.
2. Going concern
The financial statements are produced on a going concern basis. The academy sector is financed
by the Department for Education (the Department), following decisions taken in the Government’s
Spending Review process and subsequent internal decision processes. The spending review and
forward plans include provision for the continuation of funding. Therefore management believe it is
appropriate to prepare the accounts on a going concern basis.
3. Business combinations
Academy trusts converting in-year are included using the method of absorption accounting. Under
absorption accounting assets and liabilities brought into the academy sector are not revalued to fair
value but are transferred at the sector’s carrying value. Carrying value is after adjustments arising
to align accounting policies (such as for land and buildings). The net assets or liabilities acquired
within the academy sector through the business combinations, for nil consideration, are recognised
either in operating income or in other comprehensive income.
Net assets and liabilities brought into the sector from other government bodies (predominantly ex-
local authority maintained schools) are recognised in non-operating costs. Net assets and liabilities
brought into the sector from outside the public sector (predominantly converted faith and
foundation schools) are recognised in operating income to reflect the gain or loss to the public
sector.
Note 27 has further details of both combinations and the net assets and liabilities brought into the
academy sector.
Dry run Academy Sector Annual Report and Accounts
43
4. Critical accounting judgements and key sources of estimation uncertainty
The preparation of these accounts requires the Department to make judgements, estimates and
assumptions that affect the application of policies and reported amounts of assets and liabilities,
income and expenditure. These are based on historic and other factors that are believed to be
reasonable, the results of which form the basis for making judgements. The estimates and
underlying assumptions are reviewed on an on-going basis. Management has specifically made
such judgements on the inclusion of academy trusts, the recognition of their land and buildings,
accounting for capital expenditure and assets under construction, valuation of land and buildings,
accounting for trusts that have not submitted financial information and accounting for the migration
of opening balances.
4.1 Inclusion of academy trusts
Management have made judgements regarding how ATs are aggregated into these accounts and
how to reflect the financial position of the sector for the period covered by these accounts. The
[Accounts Direction] requires all open academies to be included in the aggregation to produce the
sector account, which should include all income, expenditure, assets and liabilities in respect of
trusts that were in operation on 31 August 2015.
A significant judgement concerns those academy trusts who have not prepared 31 August
accounts. There is a small population of academy trusts that has been excluded from the
aggregation since they have not prepared accounts to the date of this AR&A, as permitted by
statutory regulations. Some academy trusts, with operational academies, incorporated after
1 March 2015 have not prepared audited accounts as at the date of this AR&A. Such companies
have been excluded from the AR&A.
4.2 Recognition of academy trusts’ land and buildings
The second significant adjustment made to academy trusts’ reported results was for the sector to
recognise in all instances academy trusts’ land and buildings irrespective of what the academy
trusts recognised in their own accounts. In accordance with the accounting framework adopted by
academy trusts, some do not recognise land and buildings utilised in their operations. However,
the accounting framework (FReM) adopted for the consolidated academy sector accounts applies
different criteria to the recognition (and valuation) of land and buildings.
Accordingly, management decided to recognise all academy trusts’ land and buildings to reflect the
reality that all academy trusts operate from buildings; and the omission of such buildings and the
land on which they stand from the Sector’s Statement of Financial Position (SoFP) would
significantly understate the assets controlled and managed within the academy sector. Therefore,
the Department commissioned valuations for all academy trusts’ land and buildings consistent with
the accounting policy adopted for property, plant and equipment. The value of land and buildings
for academies included in the accounts is [£ X ] billion at 31 August 2015.
4.3 Accounting for capital expenditure and assets under construction
The structure of the sector and the scale of the Department’s capital programme, including the
Education Funding Agency’s capital programme and activity funded by individual academy trusts,
Dry run Academy Sector Annual Report and Accounts
44
means that accounting for capital expenditure is inherently complex for the sector and involves
judgements over the capitalisation of accounting for assets under construction.
4.4 Valuation of balances on 1 September 2015
As discussed in section 1, these sector accounts are the first to be prepared following Parliament’s
approval to prepare these financial statements. The Department will remove the income,
spending, assets and liabilities of academy trusts from its consolidated group accounts.
Due to the absence of equivalent balances in the Departmental Group’s [2015-16] accounts
management were required to make judgements over the valuation of assets and liabilities held as
at 1 September 2015.
Assets and liabilities recognised on 1 September 2015 are taken from the accounts returns
submitted by academy trusts as at 31 August 2015 and used in the Department’s 2015-16
consolidation process (CB1 in that terminology). Please refer to the Department’s 2014-15 AR&A
for a more detailed explanation of the consolidation approach.
As mentioned elsewhere in this note balances reported by academy trusts are harmonised to bring
them into line with the accounting policies adopted for the consolidated academy sector accounts.
A similar adjustment is made to the academy trusts’ reported balances to support the aggregation
approach. Due to the different reporting dates between the sector and Group AR&As (31 August
and 31 March respectively) not all the adjustments were required for the sector. In addition the
population of academy trusts is different across the 2 AR&As; the sector report does not
encompass a population as at 31 March.
4.5 Valuation of land and buildings
The financial statements reflect land and buildings at valuation, which requires the application of
estimates and judgements.
Initial valuations are performed by surveyors in accordance with the Royal Institute of Chartered
Surveyors’ (RICS) Appraisal and Valuation Manual and the Department’s Building Bulletin 103 and
Building Bulletin 102. In applying this guidance, sites have been valued on a depreciated
replacement cost basis for a modern equivalent asset, which involves a judgement that there are
not significant instances of non-specialist or surplus assets which might be appropriately valued on
other bases. Note 7 shows the valuation of assets on initial recognition in the Transfer on
Conversion lines, which totalled £3.4 billion for 2014/15.
The sector re-values land and buildings every 5 years from the anniversary of their initial
recognition in accordance with the policy. Between quinquennial revaluations, asset values are
updated using indices. The selection of the indices used represents an accounting judgement.
Land values have been indexed, using the HPI residential land index issued by LSL Acadata. The
Department considers that a residential price index is the most appropriate index to use across the
academy sector’s portfolio of assets.
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4.6 Accounting for capital expenditure and assets under construction
The structure of the academy sector and the scale of the Department’s capital programme,
encompassing both EFA’s grant funded capital programme and activity funded by individual
academy trusts, means that accounting for capital expenditure is inherently complex. The
accounting involves judgements over the capitalisation of assets under construction.
4.7 Pension valuation for the Local Government Pension Scheme
Local Government Pension Scheme liabilities are recognised in the Statement of Financial Position
– all other defined benefit schemes are unfunded multi-employer schemes for which we cannot
identify the sector’s share of scheme’s deficit. Details of the pension deficit are shown in note 18.
Pension assets are held at fair value. Scheme liabilities are estimated using a projected unit
method and discounted at their current rate of return on a high quality corporate bond of equivalent
term to the liability. All estimates are performed by actuaries in accordance with IAS 19. The
actuarial loss for 2014 to 2015 recognised in other comprehensive expenditure is £73.5 million.
5. Basis of aggregation
These accounts present the aggregation of academy trusts which make up the sector.
Transactions between entities included in the aggregation are eliminated, to present the
consolidated financial performance and financial position for the academy sector.
Academy trusts have been classified by the Office of National Statistics as central government
public sector bodies since 2004. ATs fall within the Department’s Designation Order and were
prior to 2016-17 included within the Departmental consolidation boundary and Departmental Group
AR&A.
For the 2013 -2014 and 2014 - 2015 financial years, the National Audit Office (NAO) has given an
adverse opinion of the DfE consolidated accounts due to the complex methodology used to
combine the results of academy trusts with those of the Department and its agencies. The
Department has continued to work with stakeholders, including Parliament and the Comptroller &
Auditor General, to address the issues arising from consolidating the sector with a 31 August year
end into the Department’s 31 March AR&A.
In January 2016, the House of Commons Liaison Committee has approved the Department’s
proposals for a new set of financial statements for academies as a whole, based on a September
to August financial year. The approach does not fully align with the requirements of Clear Line of
Sight (which aims to align budgets, supply estimates and accounts), principally because the sector
report and accounts is based on an academic (rather than financial) year. Since this is the first time
the sector accounts are being prepared, based on the academic year, reliable comparative data for
the prior academic year is not available. Accordingly HMT has given dispensation not to present
comparative data.
The Department will still produce a separate set of financial statements for DfE, including grant
paid to academies, based on the April to March financial year.
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A list of all academy trusts within the sector accounting boundary is given at note 26. Throughout
these accounts ‘Department’ refers to the core Department whilst ‘Sector’ refers to the combination
of all ATs that prepared audited statutory accounts as at the date of this AR&A. ‘Group’ refers to
the existing consolidated AR&A produced by the Department and includes all other departmental
bodies controlled by the Department and included in their Designation Order.
6. Early adoption
The Group has not adopted early any accounting standards in 2015 to 2016.
7. IFRSs in issue but not yet effective
In order to comply with the requirements of IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors, disclosure is required for not adopting a new IFRS that has been issued but
is not yet effective. The Department has carried out a review of the IFRSs in issue but not yet
effective, to assess their impact on its accounting policies and treatment, and found that none of
the updates have any material impact on the accounts. The following accounting standards and
interpretations, which have an effective date after the start of these accounts have not been early
adopted:
Standard Effective FReM Application
Impact
IFRS 13 Fair Value Measurement
Accounting periods commencing on or after 1 January 2013
2015 to 2016 The standard replaces the guidance on fair value measurement in existing IFRSs with a single standard.
This standard defines fair value, provides guidance on how to determine fair value and requires disclosures about fair value measurements. However, IFRS 13 does not change the requirements regarding which items should be measured or disclosed at fair value.
The standard will not affect the majority of the Group’s assets held at valuation, but will impact the measurement of in particular:
financial instruments; and
surplus land and buildings assets which it is not intended to bring back into operational use.
The Group may also need to make additional disclosures.
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IAS 36 Impairment of Assets
Accounting periods commencing on or after 1 January 2014
2015 to 2016 Subject to review
This amendment, which seeks to address the implications of references to IFRS 13 ‘Fair Value Measurement’, modifies some of the disclosure requirements regarding measurement of the recoverable amount of impaired assets. It clarifies the scope of certain disclosures and removes burdensome and unintended disclosure requirements without reducing the relevance and understandability of the financial information. The Group does not have many impaired assets so this is not thought to have a significant impact, to be reviewed when adopted.
Standard Effective FReM Application
Impact
IFRIC 21 Levies Accounting periods commencing on or after 1 January 2014
2015 to 2016 The standard is not anticipated to have a material impact upon the Group.
IFRS 15 Revenue for Contracts with Customers
Accounting periods commencing on or after 1 January 2018
Not yet confirmed
The standard provides a principles based model for accounting for revenue, which may impact the timing of recognition of income by academy trusts and lead to additional disclosures. However, it is not anticipated to have a material impact upon the Group overall.
IFRS 9 Financial Instruments
Not yet confirmed
Not yet confirmed
The standard is not anticipated to have a material impact upon the Group.
8. Property, plant and equipment
The minimum level of capitalisation for expenditure on property, plant and equipment is £2,500. In
the case of IT equipment and furniture all items recorded as capital expenditure are capitalised and
if they fall below the £2,500 threshold they are grouped together and recorded as bulk assets. The
asset value on capitalisation is measured at cost plus all direct costs, such as installation,
attributable to bringing them into working condition.
Land and buildings are measured initially at cost and are restated to fair value (depreciated
replacement cost) using external professional valuations in accordance with IAS 16 Property, Plant
and Equipment (IAS 16) every five years, and in the intervening years by use of appropriate
indices supplied by Valuation Office. The sector has stated other property, plant and equipment at
existing use value using appropriate indices published by the ONS. Some assets are of short life
and of low value and have used depreciated historical cost as a proxy for fair value.
The value of AuC is measured at cost plus direct costs directly attributable to bringing the assets
into working condition in line with IAS 16. Direct costs include all costs associated with purchasing
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the land and property and bringing the assets into use, and a fair proportion of the sector’s internal
costs. The sector recognises AuC assets where it has control over the asset, and the right to the
future economic benefit from that asset. At the time at which either or both is no longer the case,
the asset is removed from the sector’s SoFP.
In the unlikely situation where circumstances existing prior to the year-end indicate that assets
cannot be opened as a sector school, and will have to be sold to the open market, then an asset
will be recognised and treated under IFRS 5 Assets held for Sale and Discontinued Operations. In
that case, any difference between carrying value and fair value would be recognised as an in-year
impairment and the asset separately presented.
If a project ceased, or an asset became surplus through circumstances not yet existing at the year-
end, the changes in asset treatment would not take effect until the following financial year.
Upon conversion into the academy sector, the carrying value of academy land and buildings is
calculated at depreciated replacement cost in order to comply with its accounting policies. The
financial statements do not reflect a revaluation adjustment as the valuation was before the assets’
initial recognition in the academy sector’s accounts. As described more fully in the discussion in
4.5 the sector currently applies the guidance in Building Bulletin 103 in performing revaluations.
Land building assets are operated through a number of routes from freehold, through leasehold to
rentals. Where academy trust’s lease their land and building assets from a local authority the
majority of such leases are very long (often 100 or 125 years) and there is usually only a notional
peppercorn or no rental cost. To reflect the commercial and economic nature of such long low
value leases are classified as equivalent to freehold and aggregated all building assets into a
single asset class.
Land and buildings are revalued every 5 years using external professional valuations. For assets
held for more than a year, the sector has applied the public sector tender prices indices issued by
the Office for National Statistics (ONS) to academy buildings, and the HPI residential land index
issued by LSL Acadata to academy land.
9. Depreciation
Depreciation is provided at rates calculated to write off the valuation of buildings and other
property, plant and equipment by equal instalments over their estimated useful lives. Land and
assets under construction are not depreciated.
Asset lives are in the following ranges:
Freehold buildings 50 – 60 years
Leasehold buildings 50 years or the lease term, whichever is shorter
Leasehold improvements 50 years or the lease term, whichever is shorter
Motor vehicles 3 – 7 years
IT equipment 3 – 7 years
Plant and machinery 3 – 20 years
Furniture and fittings 5 – 10 years
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10. Intangible assets
Intangible assets are initially valued at cost and then re-valued to existing use through indices
supplied by the BIS. Assets are capitalised as intangible assets where expenditure of £2,500 or
more is incurred. Assets are amortised over their estimated useful economic lives. Assets under
construction are not amortised but are assessed for impairment annually.
Asset lives are in the following ranges:
Software licences 2 – 5 years or the licence period, whichever is shorter
Developed software 5 years
Non-software licences 3 years
Other 3 – 5 years
11. Revaluation and impairment of non-current assets
Increases in value are credited to the Revaluation Reserve, unless it is a reversal of a previous
impairment, which is credited to the SoCNE to the extent of the previous impairment and then to
the Revaluation Reserve, in accordance with IAS 36 Impairment of Assets (IAS 36).
Impairments of revalued assets that do not result from a clear consumption of economic benefits
are debited to the Revaluation Reserve up to the level of depreciated historical cost. Any excess
devaluation is charged to the SoCNE. Each year, the realised element of the reserve (i.e. an
amount equal to the excess of the actual depreciation over depreciation based on historical cost) is
transferred from the reserve to the General Fund.
Impairment losses that result from a clear consumption of economic benefit are taken directly to
the SoCNE. Where the impairment relates to a revalued asset, the balance on the Revaluation
Reserve to which the impairment would have been charged is transferred to the General Fund to
ensure consistency with IAS 36.
On disposal of a revalued asset, the balance on the Revaluation Reserve in respect of that asset
becomes fully realised and is transferred to the General Fund. Gains and losses on disposals are
determined by comparing the disposal proceeds with the carrying amount and are recognised in
the SoCNE. All non-current assets are reviewed for impairment if circumstances indicate the
carrying amount may not be recoverable. An impairment loss is recognised for the amount by
which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of an asset’s fair value less costs to sell and value in use.
12. Non-current assets held for sale
Non-current assets held for sale are measured at the lower of carrying amount and fair value less
costs to sell and not depreciated. They are also presented separately on the face of the SoFP and
in the Notes. The Sector adopts IFRS 7 Financial Instruments: Disclosures, IAS 32 Financial
Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement. The
Sector does not have any complex financial instruments. Financial assets and financial liabilities
are recognised when the sector becomes party to the contractual provisions of the instrument.
Embedded derivatives are recognised if separable from the host contract.
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13. Inventory
Inventory is carried at the lower of cost or net realisable value.
14. Financial instruments
14.1 Financial assets
Financial assets are classified where appropriate as loans and receivables; available-for-sale;
financial assets at fair value through profit and loss. Financial assets include cash and cash
equivalents, trade and other receivables and loans. The classification of financial assets is
determined at initial recognition. Financial assets are recognised initially at fair value, normally
being the transaction price plus, in the case of financial assets not at fair value through profit or
loss, directly attributable costs. Presently, the academy sector does not have any financial assets
that need to be classified as financial assets at fair value through profit or loss; neither does it have
cash equivalents or derivative financial instruments.
The subsequent measurement of financial assets depends on their classification:
Available-for-sale assets
The sector holds investments which are classified as available for sale and are carried at fair value.
Fair value is calculated as the closing bid price as at the year end. Movements in the fair value are
recognised in the SoCNE.
Trade and other Receivables
Trade and other receivables have fixed or determinable payments that are not quoted on an active
market. They do not carry any interest and are initially recognised at their face value. They are
then carried at amortised cost using the effective interest method. Appropriate allowances
(provisions/write-offs) for estimated irrecoverable amounts (bad debts) are recognised in the
SoCNE when there is objective evidence that the asset is impaired. The allowance recognised is
measured as the difference between the asset’s carrying amount and the estimated future
recoverable amount.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and on demand deposits.
14.2 Financial liabilities
Financial liabilities are classified as financial liabilities measured at amortised cost. Financial
liabilities include trade and other payables, loans and accruals. The group does not currently have
financial liabilities measured at fair value through profit or loss; neither does it have derivative
financial instruments. The group determines the classification of its financial liabilities at initial
recognition.
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The measurement of financial liabilities depends on their classification:
Trade and other Payables
Trade and other payables including accruals are generally not interest bearing and are stated at
their face value on initial recognition. Subsequently, they are measured at amortised cost using the
effective interest method.
Loan liabilities
The sector is able to take out interest free loans for the purchase cost of solar panels and the
sector recognises only the sums outstanding at the year end. The sector may also take out interest
bearing loans with the Secretary of State’s permission. The sector states such loans at their face
value on initial recognition. Subsequently, the sector measures interest bearing loans at amortised
cost using the effective interest method.
15. Grant income
Grant income from the Department and other government bodies is recognised on an accruals
basis.
16. Operating income
Operating income is income which relates directly to the operating activities of the sector, and is
generated by the sector in the course of its educational activities; which can encompass
fundraising income, hire of facilities and sponsorship income.
Income is stated net of recoverable VAT.
17. Leases
Leases are classified as finance leases whenever the terms of the leases transfer substantially all
the risks and rewards of ownership of the leased assets to the lessee. All other leases are
classified as operating leases. Operating leases are charged to the SoCNE as expenditure is
incurred.
18. Pensions
The sector has adopted IAS 19 Employee Benefits (IAS 19) to account for its pension schemes.
Accordingly for funded defined benefit schemes the sector recognises a liability in respect of any
deficit, being the excess of the present value of the scheme’s liabilities over the value of the assets
in the scheme, to the extent that the sector has a legal or constructive obligation to make good the
deficit in the scheme. The pension scheme surplus (to the extent that it is considered recoverable)
or deficit is recognised in full on the face of the SoFP. Actuarial gains/losses from the scheme are
recognised in reserves.
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Where the sector makes contributions to defined contribution and unfunded defined benefit
pension schemes (which do not have underlying assets and liabilities) the sector recognises
contributions payable in the SoCNE.
Further details of the pension schemes are available in note 17.
19. Early departure costs
The sector is required to meet the additional cost of benefits beyond the normal pension scheme
benefits in respect of some employees who retire early, and for compensation payments payable
to some employees who take early severance.
20. Provisions
The sector makes provision in the accounts where the following criteria are met in accordance with
IAS 37: Provisions, Contingent Liabilities and Contingent Assets (IAS 37). The criteria are as
follows:
a legal or constructive obligation exists that will result in the transfer of economic benefit
the transfer is probable
a reliable estimate can be made.
21. Value added tax
Most of the activities of the sector are outside the scope of VAT. In general output tax does not
apply, or where it does, input tax on purchases is not recoverable. Irrecoverable VAT is charged to
the relevant expenditure category or included in the capitalised purchase cost of property and
equipment and intangible assets. Where output tax is charged or input tax is recoverable, the
amounts are stated net of VAT.
22. Corporation tax
The sector’s ATs are considered to pass the tests set out in paragraph 1 Schedule 6 of the
Finance Act 2010 and therefore meet the definition of charitable companies for UK corporation tax
purposes. Accordingly, ATs are potentially exempt from taxation in respect of income or capital
gains received within categories covered by chapter 3 part 11 of the Corporation Tax Act 2010 or
Section 256 of the Taxation of Chargeable Gains Act 1992, to the extent that such income or gains
are applied exclusively to charitable purposes.
However, the sector recognises low levels of corporation tax arising from the small number of
trading subsidiaries held by the sector’s Group’s ATs that fall outside of paragraph 1 schedule 6
above.
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Glossary of key terms
Abbreviation
or term Description
Academies All schools operated by academy trusts encompassing academies, free schools, university technical colleges and studio schools
Alternative Provision (AP) Academies
AP academies support the education of some of the most vulnerable pupils. For example, excluded pupils, children with behavioural issues, those with a short or long term illness, school phobics or pupils without a mainstream school space.
AME Annually managed expenditure
AR&A Annual report and accounts
ATs Academy trusts: The charitable companies that operate all types of academy schools
CLoS Clear Line of Sight, an HM Treasury initiative to improve the transparency and consistency of government accounting
Converter academy
A converter academy is an academy which was not categorised as an underperforming school prior to conversion. These previously maintained schools voluntarily convert to academy status and do not necessarily require a sponsor to convert.
Department The core Department for Education, excluding executive agencies, non-departmental public bodies and academy trusts.
Department & Agencies
The core Department for Education, plus its three executive agencies but excluding non-departmental public bodies and academy trusts
Departmental Group/ The Group
Encompassing the core department, executive agencies, non-departmental public bodies and academy trusts.
EA Executive Agency
EFA Education Funding Agency
Free schools
Free schools are a type of academy. They are mainly new schools funded directly by the DfE. Any suitable sponsor can apply to the Secretary of State for Education to open a free school, including private businesses and academy trusts.
FReM Financial Reporting Manual, issued by HM Treasury
GAG General Annual Grant
HMT HM Treasury
LA Local authority
NAO National Audit Office
Multi academy trust (MAT)
An academy trust with more than one academy within it, or is set up to have more than one academy in it in future.
ONS Office for National Statistics
PSBP Priority School Building Programme, a programme to address the needs of the schools most in need of urgent repair
RSC Regional School Commissioner
SEN Special educational needs
Single Academy trust (SAT)
An academy trust which runs only one academy within it.
SoCF Statement of Cash Flows
SoCNE Statement of Comprehensive Net Expenditure
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Abbreviation
or term Description
SoFP Statement of Financial Position
SoPS Statement of Parliamentary Supply
Special academy
A special academy is an academy where admissions are usually through a young person or their parents naming the school in their Education, Health and Care (EHC) plan which puts the academy under a statutory duty to admit the young person.
Sponsored academy
A sponsored academy is usually an academy which before conversion to academy status was an underperforming school. The academy sponsor will have appointed all or a majority of the members and directors of the academy trust which runs the sponsored academy.
Studio schools
A studio school is a type of secondary academy that gives students practical skills in workplace environments, as well as traditional academic and vocational courses. They often have links to local employers. They are small, standalone schools, sponsored by existing schools, colleges and community groups.
Trust A trust is the legal entity with which the Department has the funding relationship and is responsible for the production of statutory returns such as annual accounts.
University technical colleges
University technical colleges are also a type of secondary academy for 14 to19 year olds. They are smaller than traditional secondary schools and are not academically selective. They are sponsored by a university which helps set and deliver the curriculum. The distinctive element of UTCs is that they offer technically orientated courses of study along with national curriculum requirements.