Statement of Principal Accounting Policies
(A) Basis of preparation (including going concern assessment)
The financial statements have been prepared in accordance with the Statement of Recommended Practice: Accounting for Further and Higher Education 2019 (“SORP 2019”) and in accordance with the Financial Reporting Standard (FRS) 102 and with the Accounts Direction issued by the Scottish Funding Council.
The University is a public benefit entity and therefore has applied the relevant public benefit requirement of FRS 102. The financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings.
The functional currency of the University is pounds sterling, and the financial statements have been prepared to round £000s.
Going concern
The Group and University financial statements for the year ended 31 July 2025 have been prepared on a going concern basis, the period of which is to 31 July 2027. The University and Group’s activities, financial performance and financial position, together with factors likely to affect its future development and performance, are described in the Strategic Report. Emerging and principal risks and uncertainties facing the University are described on page 8. At 31 July 2025, the University held gross cash of £4.6 million, excluding restricted funds held on behalf of SAAS (year ended 31 July 2024: £18.6 million), while current assets were £8.0m (year ended 31 July 2024: £21.4m). As at 30 November the University held £6.2m in cash.
The University’s external borrowings as at 31 July 2025 totalled £4.7 million (year ended 31 July 2024: £18.7m). Of this amount, £2.5m relates to an unsecured Revolving Credit Facility (RCF) with Santander UK Plc, and £2.2 million relates to an unsecured loan from the Scottish Funding Council under the Financial Transactions scheme. The University’s secured borrowings from Santander, as described above are subject to covenant terms. The University was fully compliant with those covenant tests during the year to 31 July 2025. The only borrowings that will be repayable during the going concern period to 31 July 2026 are £50k relating to the SFC loans.
Balances outstanding on the Santander RCF can be rolled until expiry in December 2029, and so no repayments have been considered or reflected across the going concern assessment period. However, there is a balance outstanding of £2.5m as at 31 July 2025, with access to a further £12.5m.
The University has moderate cash reserves and retains access to liquidity through the RCF, up to £15m, that can be used to support liquidity across the going concern period and up to 2029. As well as the RCF, additional borrowing from the SFC will support the University’s access to liquidity over the period to 2031 through provision of a liquidity support loan of £5 million, to be provided in early 2026.
Cash flow forecasts were prepared for the period up to 31 July 2027 to support management’s assessment of going concern. The institution’s base case scenario for the period forecasts compliance with all loan covenants at both 31 July 2026 and 31 July 2027, with sufficient cash balances and access to liquidity as required to continue operations over the period. The University is projecting loan covenant headroom no lower than £2.0m in 31 July 2027, before the implementation of further mitigating actions.
The University faces significant financial challenges going forward, including the potential for further real terms reductions in the level of grant funding receivable from the Scottish Funding Council. Further to this, recovery in relation to under recruitment of Scottish student has a material impact on the financial performance of the University, and is projected to remain an issue for the University across the assessment period. Student recruitment may be further exacerbated as a result of wider geopolitical and economic uncertainties.
Management has modelled severe but plausible downside scenarios based on a number of adverse scenarios taking place in financial years 2025/26 and 2026/27, including a reduction of planned tuition fee growth, pay and affected non pay costs remaining higher than forecast. In these scenarios the University retains liquidity and remains compliant with loan covenants throughout, before the implementation of further mitigating actions. It should be noted that in the plausible worst case scenario, the operating performance deteriorates, which in turn increases the likelihood of additional drawdowns on the RCF to support cash balances, and reduces the headroom on loan covenants. University senior management notes that in this downside scenario, decisive corrective and mitigating actions would need to be taken in order to remain loan covenant compliant, and retain access to the RCF.
The University’s reverse stress testing identifies that the EBITDA to debt service cost covenant in FY 2026/27 is under most pressure but a breach would occur only if severe downside scenarios occur without both plausible and available mitigating actions being taken. Should there be a breach of loan covenant, and the RCF be withdrawn, the University retains sufficient access to liquidity through the SFC loan in order to repay the outstanding balance.
The University is continuing to monitor its forecast compliance with covenants. Management is confident that there are sufficient mitigating actions within the University’s control that would offset any reduced income to ensure compliance with future loan covenants. These mitigations include, but are not limited to, reducing uncommitted future expenditure on discretionary capital and maintenance programmes, reducing operational expenditure, and reducing staff numbers. The University Court will continue to monitor its forecast compliance with covenants throughout this going concern assessment period, in accordance with the scheduled cycle of meetings, reporting at least quarterly.
Management continues to assume that any support for the University’s subsidiary, 鶹madou Enterprises Limited will be minimal, and although no commitment has been made to support Edinburgh Innovation Park Joint Venture Company Limited within the going concern period due to sufficient working capital being available, should it be required then the University will be required to fund an additional £200k to support working capital. As a result, management is confident that there are sufficient mitigating actions within the University’s control that would offset any reduced income or increased expenditure to ensure compliance with future loan covenants should plausible downside risks materialise.
The financial statements do not contain the adjustments that would result if the Group and University were unable to continue as a going concern.
Based on the assessment outlined above, the University has concluded that it has adequate resources to continue in operation for the period to 31 July 2027, and for this reason the going concern basis continues to be adopted when preparing the financial statements.
(B) Basis of consolidation
The consolidated financial statements include the University and its subsidiary undertaking for the financial year ended 31 July 2025. Details of 鶹madou Enterprises are given in note 13. Intra-group transactions are eliminated on consolidation. Amounts in relation to debts and claims between undertakings included in the consolidation are also eliminated.
The University and East Lothian Council each hold one share in Edinburgh Innovation Park Joint Venture Company Limited, with a nominal value of £1 per share. This joint venture between the parties was set up during 2021 with the purpose of constructing and managing the Edinburgh Innovation Park, which is being developed on land adjacent to the University campus. Since it was set up the structure of the joint venture has expanded so that it now has a wholly owned subsidiary, Hub HoldCo, which in turn has two subsidiaries, Hub DevCo and Hub OpCo, which are respectively responsible for the construction of the hub and then the running of it once it becomes operational.
Historically the University had recognised the value of the joint venture at cost, however, as activity has increased it has determined that from FY 2023/24 it shall recognise its share of the joint venture’s net assets in accordance with the equity method per FRS 102. This has remained unchanged for FY 2024/25. The University and East Lothian Council both hold half of the shares in the joint venture, and so the University recognises a 50% share of the net assets. Should the joint venture have negative net assets, the University shall recognise its share up to the extent that it has an obligation to fund the joint venture. Further details are contained in note 13.
The consolidated financial statements do not include the results of the 鶹madou Students’ Union on the grounds that, although the University provides grant funding, it is a separate legal entity in which the University has no financial interest and exerts no control or significant influence over policy decisions.
(C) Recognition of income
Tuition fee income is stated gross of any expenditure, which is not a discount and is credited to the Consolidated Statement of Comprehensive Income & Expenditure over the period during which students are studying. Where the amount of the tuition fee 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 are not deducted from income.
Income from the sale of goods and services is credited to income in the year in which the goods or services are supplied to the customer or the terms of the contract have been satisfied. Investment income is credited to income on a receivable basis.
Funds which the University receives and disburses as paying agent on behalf of a funding body or other body, where the institution is exposed to minimal risk or enjoys minimal economic benefit related to the receipt and subsequent disbursement of funds, are excluded from the income and expenditure of the University.
Grant funding
Recurrent grants from the Scottish Funding Council are credited to income in the period in which
they are receivable. With respect to the main teaching grant, the University will recognise the income to which it is entitled to in accordance with the number of Scottish student numbers recruited against targets set by the Scottish Funding Council, with a provision held for any funds received to which the University is not entitled to recognise. Non-recurrent grants and donations are recognised when they are receivable and when performance conditions have been met. Income received in advance of performance conditions being met is included in creditors as deferred income. Where there are no performance conditions, income is recognised when it is receivable.
Donations and endowments
Donations and endowments with donor-imposed restrictions are recognised as income when the University is entitled to the funds. Income is retained within the restricted reserve until such time as it is utilised in line with such restrictions, at which point the income is released to the general reserve through a reserve transfer. Donations with no restrictions are recognised as income when the University is entitled to the funds.
Capital grants
Government capital grants are recognised as income over the expected useful life of the asset. Other capital grants are recognised as income when the University is entitled to the funds subject to any performance-related conditions being met.
(D) Accounting for retirement benefits
Retirement benefits for employees of the University are provided by the Local Government Pension Scheme (LGPS) through the Lothian Pension Fund, the Scottish Teachers’ Pension Scheme (STPS) and the Universities Superannuation Scheme (USS). All three are defined benefit schemes.
Local Government Pension Scheme
The Lothian Pension Fund is a funded multi-employer defined benefit scheme, with the assets held in a separate trustee-administered fund to meet long-term pension liabilities to past and present employees. The University recognises a liability for its share of obligations under the scheme net of its share of plan assets. This net defined benefit liability is measured as the estimated amount of benefit that employees have earned in return for their service in current and prior periods, discounted to determine its present value, less the fair value (at bid price) of plan assets. The fund is valued every three years by professionally qualified independent actuaries using the projected unit credit method. Where the calculation results in a net asset, recognition of the asset is limited to the extent to which the University is able to recover its share of the surplus, either through reduced contributions in the future or through refunds from the plan in line with the specific requirements of FRS 102 accounting, not accounting for any realizable or functionally recoverable assets and the subsequent limitations in the asset position as a result.
Scottish Teachers’ Pension Scheme
The STPS is an unfunded multi-employer defined benefit scheme. Contributions are credited to the Exchequer, and the Exchequer effectively meets the costs of all benefits. The scheme is financed by payments from employers and from those current employees who are members of the scheme and who pay contributions at progressively higher marginal rates based on pensionable pay, as specified in the regulations. The rate of employer contributions is set with reference to a funding valuation undertaken by the scheme actuary. The University is unable to identify its share of the underlying assets and liabilities of the scheme. Accordingly, the University has accounted for its contributions as if it were a defined contribution scheme. The University has no obligation for other employers’ obligations to the multi-employer scheme.
Universities Superannuation Scheme
The Universities Superannuation Scheme is a hybrid pension scheme, providing defined benefits (for all members), as well as defined contribution benefits. The assets of the scheme are held in a separate trustee-administered fund. Because of the mutual nature of the scheme, the assets are not attributed to individual institutions and a scheme-wide contribution rate is set. The University is therefore exposed to actuarial risks associated with other institutions’ employees and is unable to identify its share of the underlying assets and liabilities of the scheme on a consistent and reasonable basis. As required by Section 28 of FRS 102 (Employee Benefits), the University therefore accounts for the scheme as if it were a defined contribution scheme. As a result, the amount charged to the income and expenditure account represents the contributions payable to the scheme in respect of the accounting period.
Enhanced pension benefits
In a number of instances, the University has agreed to provide enhanced pension benefits in respect of members of staff taking early retirement. These additional benefits are unfunded and are charged, as and when they arise, against a provision established when members retire to meet this liability. This provision relates to former members of staff who are members of the STPS and LGPS.
(E) Employment benefits
Short-term employment benefits such as salaries and compensated absences are recognised as an expense in the year in which the employee renders service to the University. Any unused benefits are accrued and measured as the additional amount that the University expects to pay as a result of the unused entitlement.
(F) Leases and hire purchase contracts
Leasing agreements which transfer to the University substantially all the benefits and risks of ownership of an asset are treated as if the asset had been purchased outright. The assets are included in fixed assets and the capital elements of the leasing commitments are shown as obligations under finance leases. The lease rentals are treated as consisting of capital and interest elements. The capital element is applied in order to reduce outstanding obligations and the interest element is charged to the income and expenditure account in proportion to the reducing capital element outstanding. Assets held under finance leases are depreciated over the shorter of the lease term or the useful economic lives of equivalent owned assets.
(G) Foreign currency translations
Assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the end of the financial year, with all resulting exchange differences being taken to the income and expenditure account in the year in which they arise.
(H) Fixed assets
Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses.Certain items of fixed assets which had been revalued to fair value on or prior to the date of transition to SORP 2015 are held on a basis of fair value cost, being the revalued amount at the date of that valuation. Where parts of a fixed asset have different useful lives, they are accounted for as separate items of fixed assets.
Land and Buildings are stated at cost or valuation. The campus and residences, as well as the land surrounding the campus, are externally valued at least every five years. The basis of valuation is depreciated replacement cost. In the period between external valuations the University Court reviews the value of the assets. Where the value of the Land and Buildings is considered to be below cost, either by external valuation or as a result of the Court’s review, and this is considered to be a permanent diminution in value, the difference is charged to the income & expenditure account as an impairment charge.
The heritable properties comprising 鶹madou’s property estate were valued as at 31 July 2024 by an external valuer, Gerald Eve LLP, a regulated firm of Chartered Surveyors.
The valuation was prepared in accordance with the requirements of the RICS Valuation - Global Standards 2022 and the national standards and guidance set out in the UK National Supplement (November 2018), the International Valuation Standards, Financial Reporting Standard 102 and the 2019 Statement of Recommended Practice 'Accounting for Further and Higher Education'. The valuation was undertaken on a Fair Value basis. The valuations of specialised properties were derived using the Depreciated Replacement Cost (DRC) method, whilst the student residences were valued as a trading entity using a Discounted Cash Flow (DCF). Costs incurred in relation to a tangible fixed asset after its initial purchase or production are capitalised to the extent that they increase the expected future benefits to the University from the existing tangible fixed asset beyond its previously assessed standard of performance. The cost of routine maintenance is not capitalised, but is charged to the income and expenditure account in the year in which it is incurred.
Heritable land is not depreciated. Heritable buildings are depreciated on a straight-line basis over their expected useful lives of between 10 and 50 years. No depreciation is charged on assets in the course of construction. Equipment, including computer equipment and software, costing less than £10,000 per individual item or group of related items is written off in the year of acquisition.
(M) Reserves
Reserves are classified as either 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 purposes for which it may use these funds. The policy is to revalue the estate at least every 5 years, and any surplus arising is added to the revaluation reserve.
(N) Judgements and key sources of estimation uncertainty
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. It is the view of the directors that there are no significant or material accounting judgements. The following are the key sources of estimation uncertainty:
Pension and other post-employment benefits
The cost of defined benefit pension plans and other post-employment benefits are determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and the long-term nature of these plans, such estimates are subject to significant uncertainty. In determining the appropriate discount rate, management considers the interest rates of corporate bonds in the respective currency with at least AA rating, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The underlying bonds are further reviewed for quality, and those having excessive credit spreads are removed from the population bonds on which the discount rate is based, on the basis that they do not represent high quality bonds. The mortality rate is based on publicly available mortality tables for the specific country. Future salary increases and pension increases are based on expected future inflation rates for the respective country. Further details are given in note 21 to the financial statements.
In relation specifically to the Universities Superannuation Scheme, FRS 102 makes the distinction between a group plan and a multi-employer scheme. A group plan consists of a collection of entities under common control typically with a sponsoring employer. A multi-employer scheme is a scheme for entities not under common control and represents (typically) an industry-wide scheme such as the Universities Superannuation Scheme. The accounting for a multi-employer scheme where the employer has entered into an agreement with the scheme that determines how the employer will fund a deficit results in the recognition of a liability for the contributions payable that arise from the agreement (to the extent that they relate to the deficit) and the resulting expense charged through the income and expenditure account in accordance with section 28 of FRS 102. The University Court members are satisfied that the Universities Superannuation Scheme meets the definition of a multi-employer scheme, and the University has therefore recognised the discounted fair value of the contractual contributions under the recovery plan in existence at the date of approving these financial statements.
In relation to the Local Government Pension Scheme, in accordance with the accounting policy adopted by the University, where the calculation at the year-end date results in a net asset, recognition of the asset is limited to the extent to which the University is able to recover its share of the surplus, either through reduced contributions in the future or through refunds from the scheme. The University assessed the recoverability of the asset on this basis and determined that it was appropriate that the surplus at 31 July 2025 was recognised in line with the requirements of FRS 102.
The extent to which any net pension asset can be recognised is subject to significant actuarial assumptions around the potential future costs associated with the scheme, and can be impacted by changes to actuarial assumptions and agreed contribution rates. In particular, asset recognition is based on the accounting for the assets and liabilities at a point in time and may change materially should steps to be taken to obtain any refund from the scheme in the future.
Valuation of land and buildings
The heritable property comprising the University’s property estate was valued at 31 July 2024 by an external valuer, Gerald Eve LLP of the RICS Valuation - Global Standards (January 2022 edition) and the national standards and guidance set out in the UK national supplement (November 2018), the International Valuation Standards, Financial Reporting Standard 102 and the 2019 Statement of Recommended Practice 'Accounting for Further and Higher Education'. At the balance sheet date, the values for land and buildings are as the valuation at 31 July 2024 less any depreciation to the carrying value. Management considered the basis used to undertake the valuation as reasonable and have reviewed the assets for subsequent depreciation and impairment. The net book value as at 31 July 2025 of the University’s land and building is £127.3m, the impact of a 5% change in valuation would be £6.4 million, either resulting in an increase or a decrease in the University’s revaluation reserve or an additional impairment charge.
SFC Recovery
SFC Recovery occurs when a university under-recruits compared to their non-controlled funded number. Funding for 鶹madou’s Scottish students is received for through the Main Teaching Grant, with cash recovery occurring two years after the funding is received. In accordance with FRS 102, the University has recognised a provision for funding that has been received but is not entitled to recognise as income due to under-recruitment.
In November 2025, 鶹madou received written confirmation from the SFC for the recovery figure for FY 2023/34. No formal notification has been received from the SFC relating to under delivery in FY 2024/25, with this only coming at the end of the next financial year. 鶹madou will therefore be required to provide an estimate of the under delivery relating to that financial year for inclusion within the accounts. Management has adopted the same methodology for the 2024/25 estimate as was used for the calculation of the confirmed 2023/24 recovery.
