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Financial Reporting Group Newsletter - March 2019

Welcome to the first BUFDG Financial Reporting Group (FRG) newsletter of 2019.

In this edition…

  • USS update
  • USS Modeller
  • USS liability discount rates
  • SORP workshops
  • Model financial statements (MFS)
  • Updated SORP guidance documents
  • Office for Students (OfS)
  • SORP 2022
  • IFRS 16 leases
  • Key questions you need to think about right now


USS update

At the recent FRG meeting it was emphasised by the representatives of the audit firms on the Group that the calculation of the balance sheet provision required for the commitment to USS deficit funding must be based on the Schedule of Contributions in force at the Balance Sheet date, 31 July.  

The USS Trustee has now completed the 2017 valuation and issued the resulting Schedule of Contributions.   This covers the period from 28 January 2019 to 20 June 2034 and provides for Deficit Recovery Contributions (DRC’s) of 5% for a period of 14 years and 3 months from 1 April 2020.  

Following the report of the JEP, work is now ongoing to finalise a further valuation as of 31 March 2018, reflecting updated assumptions.   However, there is a high risk that this will not be completed in time for a revised Schedule of Contributions based on this 2018 valuation to be signed before 31 July 2019.   If that is the case the current Schedule of Contributions will be the basis of the USS deficit provision for the 2019 financial year, resulting in a substantial increase in this provision for Institutions. 

 FRG will keep progress on the 2018 valuation under review and issue an update nearer the year end.


USS Modeller

FRG has released the updated USS Modeller based on the new Schedule of Contributions and it is strongly recommended that Institutions work through the likely impact of this new Schedule on their provision for the deficit in order to inform the potential year end out-turn.    Institutions may also wish to use the USS Modeller for their budgets and five year plans.


USS liability discount rates

As in the previous year Mercers have provided BUFDG with an outline methodology for institutions to arrive at a suitable discount rate.  Mercers have provided details of suggested discount rates as at February 2019 and forecast rates for end July 2019 and the two years thereafter.   An updated paper will be received from Mercers in early August with details of suggested discount rates as at 31 July 2019 to assist with the calculation of the USS deficit liability as at that date.


SORP workshops

The new SORP 2019 (reflects changes to UK GAAP following the Triennial review of FRS 102 – updated December 2017) is effective for financial years beginning on or after 1 January 2019.  Early adoption is permitted if:

  1. All amendments are applied, and
  2. Office for Students (OfS) permits early adoption.  No communication has been issued on this matter to date.

Eight workshops were held around the country over a four-week period running to end March 2019 (Northern Ireland being a new addition for 2019).  Each workshop was led by a member of FRG and supported by two audit firms.  The workshops considered:

  1. An overview of the potential impact on the new SORP2019
  2. Issues of non-compliance about Financial Statements as reported by the Office for Students (OfS)
  3. Update on USS
  4. Model statement changes
  5. OfS account direction

Click to download the workshop slides.


Model financial statements (MFS)

The MFS have been updated to incorporate the 2019 SORP (including aligning terminology to the new SORP), enhance the existing statements and include the OfS requirements.  The updated MFS will clearly identify what is an enhancement to existing disclosure requirements and what changes relate to SORP 2019 and therefore not relevant until the year ending 31 July 2020 (unless early adoption in full). 

The MFS are not exhaustive.  For full requirements refer to FRS 102 and SORP 2019.  It should also be noted that audit firms will have their own model company statements and so institutions can also reach out to their auditors for disclosure examples / guidance.


Updated SORP guidance documents

As part of the SORP 2019 work the two guidance documents have too been updated to reflect the new SORP. These are for Income recognition and Endowments and donations.

The Service Concessions document has also been updated. All documents are now available via these links, or via the Financial Reporting resources page.


Office for Students (OfS)

The current accounts direction implies that it is in force for 2 years (to July 2019).  A new or updated accounts direction is not expected but this cannot be ruled out.   They might issue an update tweaking it for high pay disclosures – we just don’t know.

Feedback from OfS for 2017/18 financial statements:

  1. They expect all providers to publish their financial statements on time this year as not all providers did for 2017/18
  2. External audit opinion
    1. Opinions did not provide assurance over the use of funds in 44% of providers – be careful, therefore, that you do not roll forward what was in previous financial statements
    2. For 3 providers the audit opinion referred only to the HEFCE accounts direction without reference to the OfS accounts direction – audit opinions will change again next year, not least because there will be no funding from HEFCE
  3. VC remuneration
    1. Some providers did not disclose the nature of taxable or non-taxable benefits, only the amount
    2. Other providers disclosed the nature of taxable or non-taxable benefits but did not provide a value
    3. Justifications statements were weak – the better ones followed the CUC remuneration report model
    4. Some providers did not disclose the amount paid in compensation for “loss of office” for all staff


SORP 2022

FRC are looking at the implementation of recent IFRS standards:

  1. Amended IFRS 9 Financial Instruments - effective 1 Jan 2018 – impact on some valuation elements and requirement for bad debt modelling
  2. New OFRS 15 Revenue with contracts with customers – effective 1 Jan 2018 – little impact expected for the sector as big push here already happened
  3. New IFRS 16 leases – effective 1 Jan 2019

FRC will not see financial statements that implement the new lease standard IFRS 16 (effective 1 January 2019) until 2020 and so it is not certain at this stage whether this will come too late for inclusion in the next review of FRS102 and consequently SORP2022.  The prevailing view now is that we will not see the inclusion of these standards into FRS 102 and SORP 2022 until 2025.


IFRS 16 leases

This is one of the key IFRS accounting standards that will likely have the most significant impact on the sector.  The BUFDG workshop slides provide some more detail but the key facts are as follows:

  1. It is applicable for accounting periods beginning 1 January 2019 if required to report under IFRS (which is not relevant to the sector).
  2. IFRS 16 removes the current classification of leases between operating and finance leases for lessees. Instead, lessees will bring all leases within the scope of IFRS 16 on balance sheet, showing an asset for the right of use and a liability for the discounted amount of future payments. 
  3. Exemptions are minimal and only apply to leases less than a 12-month term and low value (<£5K)
  4. Need to separate out non-lease components e.g. service


Key questions you should not delay considering:

  1. Are you able to identify which of your contracts are leases/contain leases?
  2. What is the impact of new and existing leases on your financial position, KPI’s and covenants?
  3. Are your systems capable of monitoring and tracking leases?


If you have any questions at all about this Newsletter, please email Karen Newcombe, or a member of the FRG


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