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This year end is likely to be different from any other due to Covid-19. We therefore thought it would be useful to update last year’s blog on preparing for your year end.

AGMs

The FCA have stated that they do not plan to take actions where AGMs have been postponed as a result of following government guidelines on Covid-19. They do highlight that members would still be able to take action in such circumstances. The FCA also state organisations will want to consider alternative arrangements for AGMs such as video conferencing.

The Corporate Insolvency and Governance Act 2020 allowed registered societies (including Credit Unions) to hold Annual General Meetings electronically and for members to vote electronically. The rule was introduced as most organisation’s rules do not specifically allow meetings to be held electronically. A traditional AGM in the current climate, however, poses a high risk to members, staff and directors. Originally this rule only applied until 30 September but it was extended until 31 December 2020. This date may be reviewed in the future depending on the position with the pandemic.

We would recommend that you do review your rulebook as soon as possible and consider implementing rules to allow member meetings to be held electronically in the future. This legislation will only last for a limited period of time and there is an increased risk of future pandemics and lockdowns.

Arrangements for the Audit

The increased risk of staff illness and potential access issues to Credit Union offices, where there are local lockdowns, offers the potential to cause audit delays. Many audits will be done remotely to help reduce the impact of these risks as well as complying with social distancing measures. Good communication throughout the audit will be even more important to ensure audits go as smoothly as possible.

Auditors should provide you with a list of the information that they require. If you don’t receive one it’s worth speaking to them to ensure you have all the information they require. We would recommend pulling together this information as soon as possible in case of illness or local lockdown restrictions. 

Focus of the Audit

A Credit Union prepares financial statements on a going concern basis, when, under the going concern assumption, the Credit Union is viewed as continuing in business for 12 months from the date of signing of the accounts. Going concern is always an audit risk but will have even more focus due to Covid-19. With most Credit Unions facing increasing bad debt costs and rising share balances, their capital ratios will be under pressure.

The directors of a Credit Union have a legal duty to consider whether the Credit Union is a going concern and to apply this basis to the financial statements. When preparing their auditors report the Credit Union’s auditors will consider the appropriateness of the credit unions’ assessment. Both the Credit Union and the Auditors will need to take into account the impact of Covid-19. As part of their audit work, your auditor will normally be looking to review your financial projections and scenarios which consider the impact of Covid-19.

Holiday Pay Accrual

With staff holidays being impacted due to Covid-19 we have received a number of questions about whether there has been any changes to the accounting rules on holiday pay accruals (for HR or legal aspects please contact your HR consultant or lawyer). While many members of staff will have more accrued holidays the accounting rules remain the same. The reason is that staff have earned these holidays and this will be a future cost to the Credit Union when staff do look to take this time off. The only difference is where staff holidays can be used over 12 months then that element technically would be discounted, although for most the difference between discounting and not is unlikely to be material. 

 Information for the Auditor

For credit unions carry who do not prepare daily bank reconciliations it is important these are carried out reconciling the year end nominal to the year end statement balance. If you don’t have a reconciliation at the year end it will lead to additional work and possibly cost from your auditor. Year end cash counts are particularly important as well. 

It is vital that your transactions on your system are up to date before your year end process. Bad debts to be written off should be done so before the year end and before running year end arrears reports to avoid double counting. It is also useful to chase up suppliers in September to ensure you have invoices for services/goods incurred before the year end. 

Certain reports can only be run at the year end. Reports involving interest are the main example of this with reports including the year end accrued interest, delinquency reports and interest earned reports usually not being able to be reproduced if not run at the year end. It is therefore important these reports are produced at the end of day on your year end. 

A year end back up is critical for a number of reasons.  If any reports are missed they could be reproduced from the backup. It also means that if there is mispostings or corruption after the year end then you have a set of records that still can be audited. 

Systems such as Curtains let you post nominal and member transactions on different days. This can lead to records not matching especially at the year end if the member posting is done in one year and the nominal posting in another. This should be avoided where possible or a record taken of these transactions to aid reconciliation of the year end balances. 

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