Preparing your academy for the end of year audit
This article has been prepared by Strictly Education for academy finance staff as a timely prompt for some of the important tasks that need to be taken prior to the year-end audit taking place.
Accruals and prepayments
Many of the year-end journals can be completed by finance staff within the academy before the audit takes place. This has the benefit of reducing the amount of time auditors need to spend on site and should therefore reduce the cost to your academy of the audit.
Expenditure - prepayments
A number of items purchased during the academic year relate to the period beyond this. These items are considered an asset to the academy and as such should be apportioned to more than just the current year.
An example of this type of item would be an annual licencing charge that has been charged on the 1st of April 2014 and relates to the period up to 31st March 2015. That would mean that only 5/12ths of the cost of the licence relates to the previous academic year April to August, and the remaining 7/12ths relates to the new academic year. This would need to be coded to the balance sheet as prepayments or prepaid expenditure.
Other examples of prepayments could include items purchased for this academic year but ordered in the previous academic year. This is common for curriculum related items which are needed for the start of the new term in September.
Expenditure - accruals
Accrued expenditure items relate to those expenses that have not been billed in the period up to the 31st August but relate to this period. They generally include items that are billed in instalments such as utility bills and leasing charges for example but would also include all purchase orders where the goods have been received prior to the end of August but no invoice has been received for them in the month of August.
These items are considered a liability for accounting purposes and need to be included in the last academic year.
Income - received in advance
As per expenditure items, income that is received by the academy needs to relate to that current academic year. In a number of cases income that the academy receives is split across two academic years and as such part of this income needs to be coded to the liability account grants in advance or income received in advance.
An example of this includes devolved capital which is received each year currently around June and relates to the financial year April 1st 2014 to March 31st 2015. This again needs to be spilt 5/12ths into the academic year April – August 2014 and 7/12ths into the new academic year.
Income – accrued
The opposite of the above also happens with certain grants that come into the academy. These grants are actually received in arrears and as such need to be calculated and included in the accounts to the end of August. Accrued income is an asset so the amounts need to be coded to the balance sheet under an asset code.
The most common example of this is pupil premium. This grant is paid in quarterly instalments in arrears with payments in January, April, July and October. The payments relate to the 3 months prior to the payment month. Therefore the October payment relates to the period July, August and September, and as such two months of this payment will need to be accrued for at the end of August.
Things to remember
When you do your end of year adjustment journals, make sure you keep a copy of any documentation associated with your journal calculations, such as raised purchase orders, copies of prepaid invoices etc., and attach them to the back of the journal print out. This will mean you have everything on hand during your audit visit which will save you time in the long run.
If you have any questions regarding your end of year audit or broader financial issues please contact the Strictly Education finance helpdesk.