Statement of principal accounting policies

BASIS OF PREPARATION

The University’s financial statements have been prepared in accordance with United Kingdom Accounting Standards, including Financial Reporting Standard 102 (FRS 102) and the Statement of Recommended Practice: Accounting for Further and Higher Education (HE SORP 2019). They have also been prepared in accordance with the ‘carried forward’ powers and duties of previous legislation (Further and Higher Education Act 1992 and the Higher Education Act 2004) and the new powers of the Higher Education and Research Act 2017 during the transition period to 31 July 2019, the Accounts Direction issued by the Office for Students (OfS 2019.41), the Terms and conditions of funding for higher education institutions issued by the Office for Students (OfS 2018.15) and the Terms and conditions of Research England Grant.

The financial statements are prepared in sterling which is the functional currency of the group and rounded to the nearest £’000.

The University is a public benefit entity and therefore has applied the relevant public benefit requirement of the applicable UK laws and accounting standards. The University is registered with the Office for Students.

GOING CONCERN

The University’s activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic review incorporating the operational review which forms part of the Board of Governors’ Integrated Report. The Board of Governors’ Financial Review also describes the University’s financial position, its cash flows, liquidity position and borrowing facilities. The financial statements have been prepared on a going concern basis which the Board of Governors consider to be appropriate for the following reasons. The Board of Governors have prepared cash flow forecasts for a period of 44 months from the date of approval of these financial statements. After reviewing these forecasts, the Board of Governors is of the opinion that, taking account of severe but plausible downsides, including the anticipated impact of COVID-19 the University will have sufficient funds to meet their liabilities as they fall due over the period of 12 months from the date of approval of the financial statements (the going concern assessment period).

The Board of Governors has considered the future cash flows of the University in December 2019 when approving the OfS Financial Forecast for submission to the Office for Students. In response to COVID-19 there was a Special Standing Committee meeting on the 4th May 2020 to discuss the University’s financial contingency planning. At the meeting scenario modelling that had been undertaken was presented and reviewed. This modelling was based upon the December 2019 OfS Financial Forecast as its starting point, with the key stress tests under consideration being:

• Reduced tuition fee income • Reduced student retention rate • Loss of accommodation, catering and conference income

The Committee also discussed the mitigation actions already implemented by management, including a freeze in staff recruitment of all but essential posts and a pause on expenditure classed as non-essential to the running of the University. The Committee recommended that more work be undertaken at reducing expenditure for 2020/21, particularly on staff costs, which culminated in a voluntary severance scheme being conducted in July 2020. The 2020/21 Budget, approved by the Board of Governors in July 2020, incorporated lower expectations regarding recruitment and accommodation, catering and conference income, to ensure that the University would remain financially sustainable should these circumstances crystallise. The University has no undrawn lending facilities and the budgeted cash flow does not require any additional facilities within the next 12 months. The budget does not breach any covenant thresholds on our existing facilities with the Triodos Bank and Allied Irish Bank.

Having reviewed the scenario modelling performed, and the mitigation actions taken, the Board of Governors is confident that the University will have sufficient funds to continue to meet their liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis

BASIS OF CONSOLIDATION

At 31 July 2020 the University held significant controlling interest in Winchester Business School Limited, Winchester Management School Limited and the University of Winchester Academy Trust due to a majority of the share capital of the entities being held by employees of the University of Winchester. These companies have been dormant since incorporation, therefore these financial statements do not consolidate the results of these companies.

The financial statements do not include the income and expenditure of Winchester Student Union as the

University does not exert significant control or dominant influence over policy decisions.

INCOME RECOGNITION

Income from the sale of goods or services is credited to the Statement of Comprehensive Income (SCI) when the goods or services are supplied to the external customers or the terms of the contract have been satisfied.

Tuition fee income is stated gross of any expenditure which is not a discount and credited to the Statement of Comprehensive Income (SCI) over the period in which students are studying. Where the amount of the tuition fees is reduced, by a discount for prompt payment, income receivable is shown net of the discount. Bursaries and scholarships are accounted for gross as expenditure and not deducted from income. Education contracts are recognised when the Institution is entitled to the income, which is period in which students are studying, or where relevant, when performance conditions have been met.

Investment Income is credited to the SCI on a receivable basis.

Funds the University receives and disburses as paying agent on behalf of a funding body are excluded from the income and expenditure where the University is exposed to minimal economic benefit related to the transaction.

TAXATION STATUS

The University is an exempt charity within the meaning of Part 3 of the Charities Act 2011 and is considered to pass the tests set out in Paragraph 1 Schedule 6 to the Finance Act 2010 and therefore meets the definition of a charitable company for UK Corporation Tax purposes. Accordingly, the University is potentially exempt from taxation in respect of income or capital gains received within categories covered by section 478-488 of the Corporation Tax Act 2010 (CTA 2010) or section 256 of the Taxation of Chargeable Gains Act, to the extent that such income or gains are applied to exclusively charitable purposes. The University receives no similar exemption in respect of Value Added Tax. Irrecoverable VAT on inputs is included in the cost of such inputs. Any irrecoverable VAT allocated to fixed assets is included in their cost.

GRANT FUNDING

Government revenue grants including funding council block grant and research grants are recognised in income over the periods in which the University recognises the related costs for which the grant is intended to compensate. Where part of a government grant is deferred it is recognised as deferred income within creditors and allocated between creditors due within one year and due after more than one year as appropriate.

Grants (including research grants) from non-government sources are recognised in income when the University is entitled to the income and performance related conditions have been met. Income received in advance of performance related conditions being met is recognised as deferred income within creditors on the Statement of Financial Position and released to income as the conditions are met.

DONATIONS AND ENDOWMENTS

Non-exchange transactions without performance related conditions are donations and endowments. Donations and endowments with donor imposed restrictions are recognised in income when the University is entitled to the funds.

Income is retained within the restricted reserve until such time that it is utilised in line with such restrictions at which point the income is released to general reserves through a reserve transfer.

Donations with no restrictions are recognised in income when the University is entitled to the funds. Investment income and appreciation of endowments is recorded in income in the year in which it arises and as either restricted or unrestricted income according to the terms or restrictions applied to the individual endowment fund.

CAPITAL GRANTS

Government capital grants are recognised in income over the expected useful life of the asset. Other capital grants are recognised in income when the University is entitled to the funds subject to any performance related conditions being met.

ACCOUNTING FOR RETIREMENT BENEFITS

The principal pension schemes for the University’s staff are the Local Government Pension Scheme (LGPS), the Teachers' Pension Scheme (TPS) and the University Superannuation Scheme (USS). The schemes are defined benefit schemes but the TPS and USS schemes are multiemployer schemes where it is not possible to identify the assets of the scheme that are attributable to the University. Accordingly, the TPS and the USS schemes are accounted for on a defined contribution basis and contributions to the schemes are recognised as expenditure in the period to which they are payable.

The University is able to identify its share of the assets and liabilities of the LGPS and accordingly the University recognises its share of the scheme's assets and liabilities in its balance sheet.

A liability is recorded within provisions for any contractual commitment to fund past deficits within the USS scheme.

EMPLOYMENT BENEFITS

Short term employment benefits such as salaries and compensated absences are recognised as an expense in the year in which the employees render service to the University. Any unused benefits are accrued and measured as the additional amount the University expects to pay as a result of the unused entitlement.

ENHANCED PENSIONS

The actual cost of any enhanced on-going pension to a former member of staff is paid by a university annually. An estimate of the expected future cost of any enhancement to the on-going pension of a former member of staff is charged in full to the University's Statement of Comprehensive Income in the year that the member of staff retires. In subsequent years a charge is made to provisions in the balance sheet using a basis provided by the funding bodies.

FINANCE LEASES

Leases in which the University assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Leased assets acquired by way of finance lease and the corresponding lease liabilities are initially recognised at an amount equal to the lower of their fair value and the present value of the minimum lease payments at the inception of the lease.

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

OPERATING LEASES

Costs in respect of operating leases are charged to the Statement of Comprehensive Income on a straightline basis over the lease term.

TANGIBLE FIXED ASSETS Land and buildings

Land and buildings that were owned by the University at the FRS 102 transition date of 1 August 2014 were valued by Alder King. The valuations were on a depreciated replacement cost basis for specialist assets and at market value where this was reasonable to obtain. The University followed the transitional arrangements as at 31 July 2014 and does not intend to carry out regular revaluations of these assets in the future.

Depreciation and impairment losses are subsequently charged on the revalued amount and subsequent costs that enhance the asset are capitalised and recognised at cost.

Newly acquired assets are capitalised at cost.

Freehold land is not depreciated as it is considered to have an indefinite useful life. Buildings, plant and machinery are depreciated on a straight line basis over their expected useful lives.

Buildings between 10 and 60 years

Plant and Machinery between 5 and 25 years

The University has adopted the useful economic life proposed by our quantity surveyor, Jackson Coles LLP, for a new learning and teaching building at the West Downs campus.

Accordingly, the maximum useful life of buildings has been increased from 50 to 60 years and plant and machinery from 20 to 25 years.

There was no impact on depreciation charges for the year ended 31 July 2020. Future years depreciation charges on the new West Downs building are estimated to be £230k (£130k buildings, £100k plant and machinery) per annum less than the previous maximum useful lives would permit, once the building comes into use in 2020/21.

Where an item of land and buildings comprises two or more major components with substantially different useful economic lives (UELs), each component is accounted for separately and depreciated over its individual UEL.

Only items of capital expenditure with a value of £5,000 or more per individual item are recognised as fixed assets.

No depreciation is charged on assets in the course of construction and finance costs which are directly attributable to the construction of land and buildings are capitalised as part of those assets.

Equipment

Equipment, including computers and software, costing less than de minimus of £5,000 per individual item are recognised as expenditure. All other equipment is capitalised.

Capitalised equipment is stated at cost and depreciated over its expected useful life as follows:

IT Equipment Motor Vehicles Fixtures and fittings 3 years 5 years 10 years

Depreciation methods, useful lives and residual values are reviewed at the date of preparation of each Statement of Financial Position.

IMPAIRMENT

A review for impairment of property, plant and equipment is carried out if events change or circumstances indicate that the carrying amount of asset may not be recoverable.

BORROWING COSTS

Borrowing costs are recognised as expenditure in the period in which they are incurred.

INTANGIBLE ASSETS

Intangible assets are recognised in the Statement of Financial Position at cost and are amortised over a period of between 3 and 10 years representing the estimated economic life of the assets. Intangible assets are subject to impairment review each year.

INVESTMENT PROPERTIES

Investment property consists of land and buildings held for rental income or capital appreciation (or both) rather than for use in delivering services. Investment properties are revalued at 31 July each year at market value with movements recognised in the Statement of Comprehensive Income (SCI).

INVESTMENTS

Non-current asset investments are held on the Statement of Financial Position at fair value unless it is not possible to determine a value in which case they are held at amortised cost less impairment. Current asset investments are included in the balance sheet at fair value.

STOCKS

Stocks are valued at the lower of cost and net realisable value.

CASH AND CASH EQUIVALENTS

Cash includes cash in hand, deposits repayable on demand and overdrafts. Deposits are repayable on demand if they are in practice available within 24 hours without penalty.

Cash equivalents are short term deposits (maturity term of less than 3 months from the placement date), highly liquid investments that are readily convertible to known amounts of cash with insignificant risk of change in value.

PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

Provisions are recognised in the financial statements when: a. the University has a present obligation (legal or constructive) as a result of a past event; b. it is probable that an outflow of economic benefits will be required to settle the obligation; and c. a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is determined by discounting the expected future cash flows at a rate that reflects risks specific to the liability.

A contingent liability arises from a past event that gives the University a possible obligation whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the University. Contingent liabilities also arise in circumstances where a provision would otherwise be made but either it is not probable that an outflow of resources will be required or the amount of the obligation cannot be measured reliably.

A contingent asset arises where an event has taken place that gives the University a possible asset whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the University. Contingent assets and liabilities are not recognised in the Statement of Financial Position but are disclosed in the notes.

RESERVES

Reserves are classified as restricted or unrestricted. Restricted endowment reserves include balances which, through endowment to the University, are held as a permanently restricted fund which the University must hold in perpetuity.

Other restricted reserves include balances where the donor has designated a specific purpose and therefore the University is restricted in the use of these funds.

KEY ESTIMATES AND JUDGEMENTS

In preparing these financial statements, management have made the following judgements:

TANGIBLE FIXED ASSETS

Assets have been reviewed to assess whether there are indicators of impairment. Factors taken into consideration in reaching such a decision include the economic viability and expected future financial performance of the asset. Where indicators exist at 31 July 2020, the recoverable amount of the affected asset is estimated and compared with its carrying amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and its value in use.

LOCAL GOVERNMENT PENSION SCHEME

The present value of the Local Government Pension Scheme defined benefit liability depends on several factors that are determined on an actuarial basis using a variety of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions, which are disclosed in Note 21, will impact the carrying amount of the pension liability. The figures included in the University’s Financial Statements allow for the 2019 Actuarial Valuation of the Fund. The effect of allowing for this 2019 Valuation is shown in the “Liability gains/losses arising during the period” and the “Asset gains/ losses arising during the period” and is reflected in the Statement of Financial Position. The demographic assumptions have also been updated to reflect those used for the 2019 Actuarial Valuation. These changes may have had a positive or negative effect on the Statement of Financial Position. The Current service cost has also been updated to reflect the results of the 2019 valuation.