Submission of Annual Audited Accounts by Kindergartens (KGs) Management Services Section Finance Division, Education Bureau November 2014

Agenda −Submission of audited accounts 2 – 3 −Preparation of audited accounts 4 – 8 −Electronic submission of audited accounts 9 – 15 −Issues identified during the examination of audited accounts 16 – 18 −Appointment of auditors 19 – 20 −Late submission/submission of incomplete /incorrect audited accounts 21 1

KGs Required to Submit Annual Audited Accounts  KGs joining the Pre-primary Education Voucher Scheme (PEVS) [EDBC No. 6/2011 – Pre-primary Education Voucher Scheme]  KGs receiving subsidies under the Child Care Centre Subsidy Scheme [EDBC No. 3/2008 – Child Care Centre Subsidy Scheme]  KGs receiving rent reimbursement [EDBC No. 2/2004 – Reimbursement of Rent for Non-profit-making Kindergartens] 2

Submission of Annual Audited Accounts  Circular memorandum calling for KGs’ 2013/14 audited accounts was issued on 26 September 2014 (i.e. EDBCM No. 142/2014). Major contents include:  Points to note in preparation of audited accounts  Formats of 2013/14 audited accounts  Points to note for schools’ auditors  Electronic submission of audited accounts Deadline for submission: 13 February

Points to Note in Preparation of Audited Accounts (1)  In preparing the 2013/14 audited accounts, KGs should note the following: (a)Observe the list of items that are covered by school fees as set out in relevant EDB circulars/guidelines, and not to charge parents for these items separately. (b)Follow the relevant EDB circulars/guidelines to properly classify their school incomes (i.e. “School Fees”, “Income from Trading Operations” and “Other Income”) and report them in the audited accounts accordingly. (c)Disclose all related party transactions in the audited accounts, including those that had been reported by schools in their fee revision applications. 4

Points to Note in Preparation of Audited Accounts (2) (d)Draw auditors’ attention to the reporting requirements as set out in the EDB’s circular memorandum calling for KGs’ audited accounts prior to the commencement of audit. (e)Observe the guiding principles on scope of expenditure as set out in relevant EDB circulars/guidelines in the use of resources from school fees which should be basically devoted to supporting teaching and learning activities, the operation of KG and maintenance of the standard education service. 5

Formats of 2013/14 Audited Accounts 6  The formats of 2013/14 audited accounts are more or less the same as previous years with slight revisions as follows:  Add new row for “Prior Year Adjustment” in the Income and Expenditure Account.  Delete the statement for Teacher Development Subsidy.  Add a new statement for reporting income and expenditure relating to the One-off School Development Grant for KGs under the PEVS.  Add common items for “Other Expenditure” so as to align with the schedules submitted by KGs when applying for fee revision.

Points to Note for Schools’ Auditors (1)  Auditors should submit an Auditor’s Report on the school accounts and state whether in the Auditor’s opinion - (a)the accounts give a true and fair view of the state of the school’s affairs as at the balance sheet date and of its result for the accounting year then ended; and (b)the school has used the government subsidies in accordance with relevant EDB circulars/guidelines. 7

Points to Note for Schools’ Auditors (2)  Auditors should draw the attention of the School Management Committees or School Supervisors to weaknesses in internal controls discovered during the course of their audits with recommendations for improvement.  KGs should discuss with auditors and rectify the problems as soon as possible. 8

Electronic Submission of Audited Accounts (1)  KGs are encouraged to join e-Submission on voluntary basis, i.e. use the excel template prepared by EDB in compiling their audited accounts and submit the softcopy to EDB in addition to the identical hardcopy of audited accounts.  The excel template can be downloaded from the following addresses for preparation of the audited accounts. For School Portal users: For non-School Portal users: 9

Electronic Submission of Audited Accounts (2)  Benefits of joining e-Submission include: (a)Facilitate schools’ accurate and easy input of financial data.  Excel templates for input: - Automatic linkage - Cross reference - Correct format (b)Speed up the review of fee revision applications submitted by schools. 10

Electronic Submission of Audited Accounts (3) 11  Compared with last year, the excel template for e-Submission has been improved as follows:  allow schools to “unshade” shaded cells, change column widths and hide unused rows according to their reporting requirements;  allow schools to insert notes in the column for Comments/Remarks;  schools can input data up to two decimal places; and  reserve more rows for schools’ input of “Other Current Assets”, “Other Current Liabilities”, “Other Income” and “Other Expenditure” etc. according to their needs.  Schools can provide softcopy of their audited accounts on or before the deadline: - electronically via the School Portal Account; or - by submitting a CD.

Electronic Submission of Audited Accounts (4) 12  KGs may download the excel template and submit the softcopy of the audited accounts via the School Portal.

Electronic Submission of Audited Accounts (5) 13

Electronic Submission of Audited Accounts (6) 14

Electronic Submission of Audited Accounts (7) 15

16 Issues Identified During the Examination of Audited Accounts (1)  Schools did not submit their audited accounts in time: 2010/11 Audited Accounts % submitted before the deadline 2011/12 Audited Accounts % submitted before the deadline 2012/13 Audited Accounts % submitted before the deadline  Schools generated profits from trading operations exceeding the relevant limits. In accordance with EDBC No. 16/2013, no profit from the sale of textbooks is allowed and the profit generated from the sale of other school items and provision of paid services should not exceed 15% of the total cost.

17 Issues Identified During the Examination of Audited Accounts (2)  Schools had made transfer of surplus (e.g. donation expenses). According to EDBC No. 6/2011, KGs joining PEVS shall not transfer the surplus, in whatever form, to any of their sponsoring bodies or other organisations.  Schools incurred investment loss in their accounts. According to EDBC No. 2/2003, school are not recommended to place surplus funds in speculative investment because of risks of financial loss. In case of loss, the liability shall strictly fall on school management responsible for incurring such loss and shall not be allowed to be recovered as a charge against the income of the school.

18 Issues Identified During the Examination of Audited Accounts (3)  Auditors did not certify whether the schools had used government subsidies according to the EDB requirements.  Schools did not put each activity of trading operations under separate columns.  Schools did not report the income from the sale of school items or provision of paid services in the Statement of Trading Operations.

Appointment of Auditors (1)  The accounts of KGs should be audited by Certified Public Accountants (practising) registered under the Professional Accountants Ordinance.  Besides the cost for the audit services, schools should also take into account other factors in the selection of auditors, e.g. relevant experience of the auditors and potential conflict of interest (e.g. business relations with the members of the School Management Committee, School Supervisor and staff of the school), etc. 19

Appointment of Auditors (2)  An engagement letter should be signed when appointing the auditor and it should generally include the following:  the objective and scope of the audit of financial statements;  the respective responsibilities of the school and the auditors;  the right of access to records, documentation and other information requested in connection with the audit;  the form of any reports or other communication of results of the audit; and  fees. [EDBC No. 5/2014 – Appointment of Auditors and Audit Engagement Letter] 20

Late Submission/Submission of Incomplete/Incorrect Audited Accounts  Late submission of the audited accounts may cause delay or suspension in the processing of the applications for school fee revision.  Incomplete/incorrect audited accounts may be returned to the schools for amendment. 21

22 Thank You