The charity SORP (statement of recommended practice) sets out how charities, including independent schools, should prepare their annual accounts and report on their finances. A revised SORP has now been issued which will apply for the year-end 31 August 2016 onwards, based on new accounting standards that also come into force then. The balance sheet at 31 August 2014 will form the opening position for the comparative figures in the first set of accounts under the new format.
The SORP is an interpretation of the financial reporting standards and generally accepted accounting practice in the UK. Because these are changing, the SORP has to be updated. The introduction of Financial Reporting Standard 102 (FRS 102) has been a radical departure as this brings together a whole series of piecemeal standards and guidelines on general accounting into a single standard. FRS 102 also includes specific sections on public benefit entities such as charities.
FRS 102 puts greater emphasis on the recognition of short-term employee benefits, such as any paid annual and sick leave, which the employee is entitled to during the accounting period, but has been carried over to after the balance sheet date, and will be paid in the following period. These amounts will now have to be accrued within the accounts if they are material in value.
You will need to estimate this figure as at 31 August 2014, as this will form part of the opening position for the comparatives of the first set of accounts prepared under FRS 102. Whilst most staff will take holidays only in the school year, staff on maternity leave or sick leave may have significant accrued holiday due that you need to provide for at the year-end. Keeping a record of amounts due at 31 August 2014 will mean you are prepared for the new SORP when it comes in.
Fixed assets at valuation no longer have to be revalued every five years, but whenever is sufficient to give a reasonable valuation within the accounts. In addition, upon transition to FRS 102, there is an option to revalue property to fair value (current market value) from cost as a one-off transaction. There is no requirement to continue with revaluations following this revaluation. This is therefore a potentially beneficial option for schools looking to boost their balance sheet without having to perform regular ongoing valuations. A downside is that this will lead to increased annual depreciation charges and may cause deficits. If you think you may wish to take up this option, you will need a valuation at 31 August 2014 to form the opening valuation.
Defined benefit pension scheme
In theory FRS 102 no longer requires a valuation from an independent actuary every year if the basis of the valuation has not significantly changed and there is no reason to consider that the value has changed significantly. In practical terms, however, it will only be possible to know whether the valuation of a pension scheme has changed by obtaining a valuation from an actuary. So if you have a defined benefit pension scheme then you will still need to obtain the equivalent of the current FRS17 pension valuations.
Other key issues to affect independent schools in the new SORP include:
• all entities have to prepare a statement of cash flows
• all charities must disclose the total amount of all employee benefits received by ‘key management personnel’
• all charities must disclose the fact that there were no employees who received pay over £60,000 or disclose the number of employees remunerated above £60,000 in bands of £10,000
• charities are encouraged to disclose their remuneration policy in the governors’ annual report.
Helen Elliott, Sayer Vincent W: www.sayervincent.co.uk