In my experience on boards of not for profit organizations the one constant was the presentation of the audited statements. As soon as this agenda item came up everyone would turn to me to present the statements but everyone had their head down. No one felt comfortable to ask any questions. Actually it was understandable. Audited statements would look intimidating to a person without a financial background. The whole package can be many pages and it’s filled with accounting jargon. People justified their lack of questions by noting that the auditors are the experts and if they signed off on the statements why anyone question what was in them.
While the auditors may be the expert there is a reason to review the audited statements. The audited statements can give you clues about potential problems that are or may occur in the organization. If you are a board member you are ultimately responsible for the financial affairs of the organization. Review of the audited financial statements is an important part of fulfilling your obligations.
A couple of year ago I did a presentation for the Charity Law Information Program (CLIP) that was managed by Capacity Builders and made possible by a financial contribution from CRA. The goal of the program was to help charities become more aware of their obligations. My presentation was focused on reading the audited financial statements and what you should be looking for.
I went through each section of the audited financial statements explaining what each section represented and the components of those sections. I also explained some of the accounting jargon that is commonly used in terms a non financial person could understand.
In simple terms what I emphasize is to look for large variances from one year to the next. Those are the items you should ask about if you don’t already know the answer. They other point I want to acknowledge is that there are sections of the audited statements that are more technical and difficult to understand. What I speak to is the issue that the board should focus on. For example the Statement of Changes in Net Assets is probably the most complex statement to explain to a non financial person. Rather than trying to understand the mechanics of the numbers presented, I believe it’s more useful for the board to understand if the organization has a reserve fund and are their guidelines or policies concerning operating surpluses.
In reality most of what is in the audited statements should not come as a surprise to board members. If you have been overseeing the finances of the organization through the year there should not be a lot of questions but as I point out in the video there are areas that can indicate if there is a problem and you will want to pay attention to those items for your organization.