August 2012 | ref: Circular letter 21/2012
1. I am writing to inform you of a revision to HEFCE’s Accounts Direction for 2011-12; and of the Accounts Direction to higher education institutions (HEIs) on preparing financial statements for 2012-13.
2. The HEFCE Accounts Direction for 2011-12 remains as published in ‘HEFCE’s Accounts Direction to higher education institutions for 2011-12 financial statements and revised Accounts Direction for 2010-11’ (HEFCE Circular letter 20/2011), but with a revision.
3. Paragraph 7 of the previously published accounts direction stated that:
‘Following good practice in private sector corporate governance HEFCE is reflecting on the scope of a going concern disclosure to be made by HEIs in 2011-12 financial statements. This will be informed by the outcome of the current inquiry into going concern assessments by the Financial Reporting Council. The Accounts Direction for 2011-12 will be revised in this respect in the light of the Financial Reporting Council inquiry.’
4. As the final recommendations of Lord Sharman’s inquiry on going concern and liquidity risk were not reported until June 2012, the sector will not be required to implement them in its 2011-12 audited financial statements. A number of HEIs are piloting the implementation of the Financial Sustainability Strategy Group’s report ‘Assessing the sustainability of higher education institutions’ (June 2011). This pilot exercise will take into account any response from the Financial Reporting Council following Lord Sharman’s final report, and this will inform any going concern disclosure to be required across the sector in 2012-13 audited financial statements.
5. HEFCE’s direction is as follows.
6. HEIs are required to follow the ‘Statement of Recommended Practice: Accounting for Further and Higher Education’ (SORP), or any successor to the SORP, in the preparation of their financial statements. The latest version of the SORP (2007) is available from the Universities UK web-site.
7. In the case of an HEI that is also a company limited by guarantee, this direction is subject to the requirements of the Companies Act.
8. The financial statements shall be signed by the accountable officer and by the chair or one other member of the governing body appointed by that body.
9. Following good practice in private sector corporate governance HEFCE is reflecting on the scope of a going concern disclosure to be made by HEIs in 2012-13 financial statements. This will be informed by the response from the Financial Reporting Council following Lord Sharman’s inquiry on going concern and liquidity risk. It will also be informed by the work of HEIs piloting the implementation of the Financial Sustainability Strategy Group’s report on ‘Assessing the sustainability of higher education institutions’. The Accounts Direction for 2012-13 will be revised in respect of this.
10. The voluntary Governance Code of Practice contained in the Committee of University Chairs’ (CUC’s) ‘Guide for Members of Higher Education Governing Bodies in the UK‘ (HEFCE 2009/14) recommends that HEIs report in the corporate governance statement of their annual audited financial statements that they have had regard to the Code, and that where an HEI’s practices are not consistent with particular provisions of the Code an explanation should be published in that statement.
11. Adoption of the CUC Governance Code of Practice, with the principles of the Code adapted as appropriate to each HEI’s character, is an important factor in enabling HEFCE to rely on self-regulation within HEIs and hence minimise the accountability burden.
12. HEIs are required to maintain a sound system of internal control and to ensure that the following key principles of effective risk management have been applied. Effective risk management:
13. HEIs are required to review at least annually the effectiveness of their system of internal control.
14. HEIs are required to include in their annual financial statements a statement on internal control (corporate governance). In formulating their statements, HEIs should refer to best practice guidance, including guidance from the British Universities Finance Directors Group. As a minimum these disclosures should include an account of how the following broad principles of corporate governance have been applied:
15. HEIs are required to make a statement on corporate governance covering the period 1 August 2012 to 31 July 2013 and up to the date of approval of the audited financial statements.
16. The latest date for submission of HEIs’ 2012-13 audited financial statements is 1 December 2013. Earlier submission is very welcome.
17. HEIs are required to ensure that their contracts for external audit make provision for an opinion on whether the HEI has applied funds provided by HEFCE, where appropriate, in accordance with the Financial Memorandum, and whether funds from whatever source including funding council grants have been used for the purposes for which they were received. Guidance on wording is available in paragraph 71 of Annex B in ‘Model Financial Memorandum between HEFCE and institutions: Terms and conditions for payment of HEFCE grants to higher education institutions’ (HEFCE 2010/19).
18. HEIs are required to disclose the following:
19. The following information should be included in the HEI’s audited financial statements and related reports:
20. The Accounts Direction is reviewed annually. The 2012-13 Accounts Direction will remain in force unless HEIs are notified otherwise. We recommend providing copies of this letter and the annexes to the HEI’s finance and audit committees.
21. Any matters arising from this letter should be referred to your HEFCE assurance consultant or assurance adviser.
Sir Alan Langlands
|Enquiries should be directed to:||For further information contact your HEFCE assurance consultant or assurance adviser. A list of contacts is available at www.hefce.ac.uk/whatwedo/reg/assurance/contacts/.|
Page last updated 13 August 2012