IATA’s new UK financial criteria came into force on 1 October 2020 together with the agreed temporary charges due to Covid-19 running from 1 November 2020 to 31 October 2021.
You can read the new financial criteria here.
With these changes there are some key points:
- The simple +£1 liquidity test (Positive net current assets) has now been replaced by two liquidity tests – Quick Ratio and Cash Cover ratio (This is a permanent change).
- In the temporary period 1 November 2020 to 31 October 2021 these test ratios are temporarily adjusted as is the profitability requirement – i.e. IATA accredited entities can make a loss in the current year without triggering financial security/bonding providing the IATA accredited entity passed the profitability test in the two previous accounting periods.
Note the following accounting entry requirements:
Overdraft or RCF (Revolving Credit Facility) Remaining: Remaining authorised or arranged Overdraft or RCF, held in the name of the IATA Accredited Agency. The lender must be a Financial Services Provider, investment firm or consumer credit firm who has been authorised by the UK Financial Conduct Authority.
- The above statement needs to be outlined in the Agent’s Accounts or in a separate document signed by the Auditor, so it can be taken into account in the outlined criteria.
- The Overdraft or RCF remaining is optional – if an Agent does not require an overdraft or RCF in order to meet the Cash Cover Ratio, then this does not need to be included in their Accounts.
BSP Outstanding Cash Sales at FYE: This figure must be declared by the Auditor in the Accounts or in a separate statement.
The IATA tests are on the stand alone accounts of the accredited entity and not the consolidated group financials.
Therefore on all IATA accredited agents audited financials, and in my onion non-audited financials, being completed now if it is for an IATA accredited entity you will need to obtain a copy of any overdraft or RCF agreement and the notes to the accounts should disclose the amount of the RCF, the term of the RCF and the full legal name of the lender. You will also need to ascertain the BSP Outstanding Cash Sales at the FYE. If the IATA entity is on twice monthly BSP this will be the last two weeks of the FYE plus possibly a day or two accrual depending upon when the BSP direct debit is taken. If the IATA is on weekly BSP then it will be the last week of the FYE plus possibly a day or two accrual depending upon when the BSP direct debit is taken.
Where the entity is IATA accredited as part of your bespoke travel audit programme you should run the IATA Profitability Quick Ratio and Cash Cover Ratio as part of your going concern review (taking account of the temporary changes where appropriate).
As the financial ramifications of Covid-19 on agents has continued for nearly a year now, you need to keep in mind that these temporary financial criteria only relates to one financial year end within the period. It would be worth assessing whether lengthening the year end to encompass a second period of loss making would be more beneficial than 2 financial years in a row being loss making. Each client situation will be different, but the financial impact of any IATA bonding requirements or pre funding of BSP needs to be considered as part of the future financial impact assessment. Pro-active and professional knowledge in this area of travel regulatory can really be of assistance to your client in an extremely challenging landscape.
Also the requirement to provide a practicing certificate confirmation with the submitted financials to IATA has been in place for over a year now. The below is the requirement, which has an addition in that proof from the ICAEW online directory would be one of the acceptable attachments, instead of the annual receipt. It should be noted that the proof from the ICAEW online directory will need to come from us as the accountant signing the report and not to expect IATA to be given a link and for them to search it, as that will not be happening in the immediate future as far as I am aware. You will need to provide your clients with these documents for them to submit with their annual financial statements.
To validate the above, Agents must provide a copy of one of the following supporting documents with their Annual Financial Statements:
- The Auditor/Accountant’s original Practicing Certificate, which must not be older than one year from the date of signing of the audit report to the Accounts; or
- The Annual Receipt for Auditor/Accountant’s membership renewal of the approved Accountancy body; or
- Proof from the Accountancy body's own online directory showing that the Auditor/Accountant is a member of the approved Accountancy body and holds its Practising Certificate
The CAA is also going to have extra reporting requirements for ATOL companies for the 2021 ATOL renewals. They are currently being drafted, but I will write an update as soon as they are finalised.*The views expressed are the author’s and not ICAEW