Understanding financial reports

Within the Not for Profit (NFP) sector, significant differences exist in the form and content of financial reports (or financial statements) prepared by NFPs. These differences arise due to the wide range of activities NFPs are involved in, the needs of different stakeholders, the legal form of the NFP, and the different laws and regulations that apply to NFPs.

Financial reporting by NFPs provides information to members that demonstrates effective stewardship and accountability, and to assist in their decision-making.

As a dedicated Board Member, understanding Financial Reports can be challenging and frustrating. Often when reviewing results, you are asked for your opinion. Common thoughts and ideas are “What should you I look for?”, “What are they telling me?”, “I hope someone else understands them…”

Here are some tips to help you to overcome this hurdle:

  1. Always look for comparatives either against a budget, a previous year or past months. This will allow you to see movements within the results you are reviewing and gauge the importance of the trend. This rigor should apply to both the Balance Sheet and Income Statements.
  2. Review Current Assets less Current Liabilities to ensure the organisation is solvent and can pay its way. If it is a negative result, ask what’s being done to correct this position.
  3. Seek out the Cash or Bank position and again review its consistency or inconsistency asking questions about its movements and “why?”
  4. Focus on the major items within the report, not the minor “rats and mice” items. Good Governance is about solvency and strategy and ensuring the organisation is complying with its plans and the direction the Board has chartered.

If you are unsure of the financial position the organisation is in as indicated in the reports you have been presented with, ALWAYS ask questions until you are satisfied, and challenge the responses you have received until you are convinced of the situation at hand.

Often, NFP financial reports are independently audited or reviewed. This may be undertaken to comply with statutory or other requirements, or done voluntarily by the NFP. An audit or review can provide additional comfort or assurance to members about the accuracy of information contained in financial reports.

CBB’s Financial Services Team offers a range of services that may assist with your organisation’s financial processes and reporting. To get in touch or find out more, contact us via:

Email: consulting@cbb.com.au
Phone: 1300 284 364