Academy FRS 102 accounting: considerations for the period ending 31 August 2020

Published by Julie Baillie on

Estimated reading time: 4 minutes


Pencil case? Check. Lunch box? Check. Hand gel? Check. Back to school plans look a little different this year, but in any new “normal” someone still has to do the paperwork. For academy trusts this means annual accounts and not one but at least two pension schemes to report: the Teachers Pension Scheme (TPS) for teaching staff and the Local Government Pension Scheme (LGPS) for non-teaching and support staff.

There are now over 9,000 individual academies and free schools in England and our specialist public sector team at Barnett Waddingham prepares accounting disclosures for thousands of academy trusts each year. Some disclosures cover a number of schools in multi-academy trusts (MATs), others are simply for individual academies and single academy trusts. 

Most of the academies we provide FRS 102 information for participate in one of the LGPS Funds that we already advise, but we also prepare disclosures for an increasing number of academies in other Funds. 

MATs can find it more efficient and easier to follow to have a single report covering all their academies or to have the same format for their individual reports, even when the academies are across different LGPS Funds. Where we already advise the LGPS Fund, then there are further efficiencies in that we already have the majority of information needed to produce the disclosures.

Helping academies with their accounting

To help our employers understand their disclosures we provide free employer briefing notes in August and September each year (i.e. in advance of and after the 31 August accounting date). These set out our standard approaches and lets us flag important issues or options for academies ahead of their accounting date. We also provide a free glossary and FAQs document.

We appreciate that pension responsibilities are only one of many things that employers have to deal with, and some auditors may not have the specialist LGPS experience to understand and explain the approach and processes. So this relevant background information is always well-received and helps to answer queries that may otherwise incur additional charges.

Where more bespoke advice is needed, Barnett Waddingham has a large team of experienced colleagues who are very familiar with all aspects of academy participation in the LGPS, including pooling arrangements, outsourcings and changes of MAT or even LGPS Fund. The assumptions used for accounting are ultimately the responsibility of the employer and we regularly offer advice about, and show the impact of, bespoke financial or demographic assumptions too.

Accounting vs funding

Often we are asked why the accounting position is so different from the funding position. The key difference is the accounting standards prescribe using a corporate bond yield as the discount rate, resulting in a higher value placed on the liabilities compared to the funding valuation. This uses a prudent estimate of the return on your Fund’s assets, which generally have a significant allocation to growth assets.  
 
To help with this issue, we can provide a funding update at 31 August 2020 alongside the accounting report to help explain the difference in these valuations to your trustees, committee or board and, importantly, help other relevant parties to understand that the actual cash cost to the fund is the contributions paid as certified following the funding valuation and not the service cost as shown in the accounting disclosures. 

Impact of the 2019 valuation and McCloud

This year academies can expect to see the impact of the 2019 valuation which, among other things, is likely to bring “experience” gains and losses on the assets and liabilities. From our discussions with auditors so far this year, we expect to answer a lot of queries and to carry out much more analysis of experience items than in previous years. 

Having carried out the triennial funding valuation for most of our academies’ Funds (and with access to the data used for previous accounting disclosures) we are very well placed to answer questions about the experience gains and losses, and to quickly address any queries about member data and funding arrangements. 

Academies are also likely to need to include an allowance for the additional liabilities arising due to the McCloud judgement if no allowance was made last year (see more details in another one of our briefings here). Barnett Waddingham has the expertise to calculate an appropriate allowance for inclusion in the accounts which have been tested and approved by auditors over the past year.

Would you like to know more?

Please get in touch with your usual contact at the administering authority of your Fund if you have not yet received our briefing note or FAQs. If Barnett Waddingham is not your Fund actuary then you can contact me directly. We would be happy to help if you would like to consider bespoke advice or to find out more about the practicalities and costs of commissioning a report for your LGPS or TPS benefits. 

The Academies Accounts Direction, published by the Government, is detailed guidance for academy trusts and their auditors on preparing and auditing these annual financial statements. The accounts direction supplements the Academies Financial Handbook, which provides the overarching framework for every academy trust’s financial management. Accounting for the TPS can be straightforward following the approach set out in the Handbook, but accounting for the LGPS requires a specialist disclosure prepared by an actuary.

If you would like to talk about this topic, please get in touch with your usual Barnett Waddingham contact to find out how we can support you. Alternatively, please contact me below.
 

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