It’s all very confusing with the patchwork of faith, community and foundation schools. Where do they each fit in local authority balance sheets? Help is at hand from CIPFA
The complicated patchwork of schools in England and Wales generates much discussion about their governance, funding and performance but also complicates their accounting. While community schools are clearly within the local authority boundary and academies outside, for foundation and faith schools the position was less clear.
To bring consistency of approach a joint Treasury and CIPFA/LASAAC working group was established in 2013 to review the accounting treatment of local authority maintained schools. After consultation, CIPFA/LASAAC has incorporated the following in the 2014/15 Code of Practice on Local Authority Accounting in Appendix E:
● Local authority maintained schools are capable of being treated as entities for control purposes.
● For those schools, the balance of control under IFRS 10: Consolidated financial statements lies with local authorities and therefore transactions should be reported within the local authority boundary.
● The adaptation of IFRS 10 and IAS 27: Separate financial statements requires that schools’ transactions should be recognised within the financial statements of local authorities.
However, CIPFA has become aware of difficulties with the recognition of schools’ non-current assets in local authority balance sheets.
To help, the Local Authority Accounting Panel has issued LAAP bulletin 101: Accounting for non-current assets used by local authority maintained schools (December 2014). This confirms that property used by schools should be recognised in accordance with asset recognition tests under Chapter 4 of the Code of Practice. In relation to property owned by religious bodies and occupied by voluntary aided (VA), voluntary controlled (VC) and some foundation schools, CIPFA understands that in most cases there has been no reassignment of property rights that would pass control to the schools or their governing bodies.
The bulletin examines arrangements for such properties under IAS 16: Property, Plant and Equipment, and in particular the definition of an asset in The conceptual framework for financial reporting 2010 (IASB Conceptual Framework). It concludes that these would not be recognised as assets controlled by the school and should not be recognised in local authority balance sheets.
But it says: ‘Local authorities will need to establish that the situation and analysis exists for VA, VC schools and foundation schools where assets are owned by religious bodies in their area and assure themselves as to the extent to which this situation is applicable. Where different circumstances exist or where schools can prove that the rights of the trustees/owners are not substantive, authorities and schools may wish to consider the asset recognition criteria and circumstances outlined in the bulletin.’
The bulletin (downloadable in PDF format from the CIPFA website here) also confirms that where assets are owned by the governing bodies of foundation schools it is likely that they will be recognised as assets of the school.
Where other arrangements for foundation schools, these would need to be assessed to determine whether enforceable and substantive rights to the assets are assigned to the governing body.
The recognition of non-current assets outlined above will be deemed to be a change in accounting policy if non-current assets are not recognised currently in the local authority balance sheets.
An update by CIPFA/LASAAC to the 2014/15 Code of Practice includes transitional provisions for schools’ non-current assets to be recognised for the first time at fair value. The transitional provisions permit this valuation to be treated as a deemed cost.
Laura Deery is CIPFA’s technical manager
This opinion piece was first published in the January/February issue of Public Finance magazine
