Understanding_Financial_Reports

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- Union Governance Training -
Session 3
Financial Management
Understanding Financial Reports
Session 3.1
Financial Management
Definition of financial management
Efficient and effective financial management ensures
that the members’ funds and resources are used only
to advance the interests of members and are
protected from misuse
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Key elements of financial management
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Qualified and experienced staff
Appropriate systems and technology
Clear financial policies
Clear procedures to implement policies
Good planning and budgeting process
Regular and readable financial reports
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Clear financial policies
• Section 553A: The organisation must have a policy,
complying with requirements prescribed by
regulation, on the range of financial matters listed
(see session 1).
• Policies must be written and available to relevant
officers.
• Policies should be consistent across the organisation.
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Authorised expenditure
• All expenditure must be authorised and recorded by
authorised officers or others delegated by them
• Clear descriptions of officers with authority to
authorise expenditure, and of delegated
authorisation at different levels.
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Examples of expenditure policies
• Cash Management: receipts and banking,
signatories, payment authority
• Purchasing: goods, tendering and leases
• Fixed assets/vehicles: purchasing, controlling,
disposing
• Expenses: payment authority, credit card controls
• Salary structures and employee entitlements
• Creditors, debtors: payment and debt collection
policy
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Clear financial procedures to implement policies
• How a financial transaction is to be dealt with,
including relevant forms
• Who has the authority to approve the transaction
• What records are to be kept of a transaction, and to
which account it should be recorded in the budget
and financial report
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Cash and accrual accounting
• Cash accounting: transactions only recorded when
payments are made or income received
• Accrual accounting: income and payments recorded
when the transaction occurs, regardless of when the
actual payment is made or received.
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Advantages of accrual accounting
• Income and spending are recorded when the
transaction occurs, not when actual payment is made
or received
• Matches revenue and expenditure in the correct
accounting period
• More accurate because it ensures that obligations to
creditors and expected income from debtors are
visible at the time incurred
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Role of expenditure policies and budgets
• Expenditure policies and budgets allow planning and cost
control of particular items in advance
• A budget of expected costs at the beginning of the
financial year can be monitored monthly to control
expenditure
• Items such as staff salaries and on-costs, expenses
including credit cards, rent, travel, motor vehicles,
publications and campaign expenses should be
authorised by senior officials who can check against the
budget allocation
• These records form the basis of the annual financial
report
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Obligation to keep accounting records
Section 554 Obligation to keep accounting records
• An organisation must keep accounting records for its
transactions for at least 7 years after the end of the
transactions they are about.
• accounting records of an organisation means financial
documents that explain the methods and calculations about
how its accounts are made up and correctly record and explain
the organisation’s transactions and financial position.
• Accounting records must be prepared in accordance with
Australian Accounting Standards
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Obligation to prepare accounts
Section 555 Obligation to prepare accounts
• An organisation must prepare the accounts and other
statements (accounts) prescribed under a regulation for each
financial year as soon as practicable after the year ends.
Required are:
– Statement of income and expenditure (also known as a
profit and loss statement)
– Balance sheet (assets and liabilities)
– Notes to explain the methods by which the accounts have
been prepared
• The Regulation requires specific details to be included in each.
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Obligation to prepare accounts
Accounting officer’s certificate
• An organisation’s accounts must contain a certificate from the
officer responsible for keeping its accounting records attesting
to certain matters, including:
– the number of financial and unfinancial members
– whether the officer considers the accounts show a true and
fair view of the organisation’s financial affairs
– whether the officer considers amounts collected from
members have been properly handled
– whether the officer considers each expenditure was
approved in accordance with the organisation’s rules.
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Obligation to prepare accounts
Management committee certificate
• The accounts must also include a certificate from the management
committee attesting to:
– Whether the management committee considers the accounts
show a true and fair view of the organisation’s financial affairs at
the end of the year
– Whether the committee considers the organisation was solvent
during the whole or part of the year
– Whether the committee considers the management
committee’s meetings were held under the organisation’s rules
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Obligation to prepare accounts
– Whether a committee member knows if any of the
organisation’s records or rules have not been given to members
as required by law or the organisation’s rules
– Whether the audit report and relevant accounts for the financial
year immediately previous have been presented to a meeting as
required by the Act and given to members as required by the
Act.
• A management committee member, if making a comment about
something dealt with in the audit report or financial disclosure
statement (which includes the accounts) must not state anything in
the comment the member knows is false or misleading in a material
particular.
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Requests for information
Section 556 Member may apply for prescribed information
• A member of an organisation may apply to the organisation for
information that it must, under a regulation, give its members. This
includes:
– Details of donations or grants given to or by the organisation
– Remuneration paid to an officer of the organisation
– Profit or loss on sale or revalue of an asset
– Loans by or to the organisation
– Non-public investments
– Contingent liabilities
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Requests for information
• The registrar may make an application for a member, in which
case the registrar must then give the information to the
member.
• The information must be given within 28 days (or 6 weeks if
certain criteria are met) and be given in a prescribed way.
• The Registrar also has powers to direct an officer of an
organisation to give the Registrar information about the
organisations funds, accounts or accounting records (see
section 557).
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Reporting requirements
Section 565 Obligation to present to general or committee meeting
An organisation must present its audit report and financial disclosure
statement for each financial year to a general meeting or a meeting of the
organisation’s management committee (a presentation meeting) within 5
months after the end of the financial year; or if the registrar has extended
the time to hold the meeting—the extended time.
Section 566 Obligation to publish audit report and financial disclosure
statement
An organisation must, at least 28 days before each presentation meeting,
give its members, free of charge, a copy of the audit report and financial
disclosure statement to be presented at the meeting or publish the report
and statement in a journal or newsletter that it gives to its members free
of charge.
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Filing and publishing requirements
Section 570 Report and statement must be filed and published
Within 14 days after the report and statement are presented (or a
longer time allowed by the registrar)an organisation must:
• File a copy of the audit report and financial disclosure statement for
each of its financial years, and a certificate by its president or
secretary stating the originals of the report and statement have
been presented to a general meeting or management committee
meeting of the organisation; and
• Publish a copy of the audit report and its financial disclosure
statement. These must continue to be published for a period of 2
years.
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Session 3.2
Understanding financial reports
Ignorance is not a defence
• All officers have the duties described in session 1, meaning they all
need to:
– Be informed about the subject matter
– Exercise care and diligence
– Make judgements in good faith and for a proper purpose
– Not have a conflicting personal interest
– Exercise their judgement in the best interests of the organisation
• All members of management committees must know how to read
and assess a financial report, because they are required to vote on a
resolution in relation to the management committee certificate (see
example).
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Annual financial reports
• Financial reports tell members about the financial activity for the
previous financial year. They must contain:
– Certificate from the management committee that the report is
true and fair and debts can be paid when due
– Certificate from the accounting officer
– Income and expenditure statement
– Balance sheet or statement of financial position (profit and loss
statement)
– Notes to these statements (which must be read because they
contain essential information)
– Auditor’s report
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Income/expenditure statement
• Shows the income and expenditure for the financial year by
category, e.g. salaries, motor vehicles, campaigns, printing,
etc.
• surplus (more income than expenditure) or
• deficit (more expenditure than income)
• A deficit over more than one year may indicate problems
• Check variations in expenditure on particular items
• Check notes for explanations, eg. moving membership income
from cash to accrual basis can have a one-off impact if income
moves from one financial year to another
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Balance sheet
Shows what the union owns as assets, and what it owes
as liabilities at the end of the financial year
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Assets
• Includes cash, investments, property, equipment and money
owed
• Assets that can be drawn on in the next financial year are
called current assets.
• Assets that cannot be drawn on in the next financial year are
called non-current assets
• Check notes to see that current and non-current assets are
classified accurately
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Liabilities
• Amounts owed to creditors, or loans used to finance
operations
• Liabilities due within the next financial year are called current
liabilities
• Liabilities due after the next financial year are called noncurrent liabilities
• Check notes to see that current and non-current liabilities are
classified accurately.
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Net worth or equity report
• Assets minus liabilities show the net worth of the union
• Shows whether the union is solvent, meaning whether it can
pay its debts when due
• If liabilities are greater than assets, this indicates problems
unless the union has a source to draw on to pay debts when
due. For example, a branch may be subsidised by payments or
guarantees from the other union structures
• Notes should contain a statement of solvency. Check notes for
this and any reference to subsidies and guarantees.
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Changes in equity report
• Total of assets minus liabilities, including the surplus or
deficit from the income statement
• Accumulated surplus or deficit
• Note: if there is an accumulated deficit, does the union
have a plan to reduce it?
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Cash flow statement
• Shows the inflow and outflow of actual cash income and
expenditure during the financial year, and the cash on
hand at the end of the year
• Note: cash on hand should be able to meet immediate
payments due
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
Auditor’s report
Usually a statement that:
• The financial report presents fairly the union's financial position
• Complies with Australian Accounting Standards.
• Complies with legislative requirements.
Audit report requirements in Queensland have been expanded to
include:
• The financial disclosure statement and mid-year financial disclosure
statement;
• The policies required under section 553A(1); and
• The organisation’s spending for political purposes under section
553D.
UNION GOVERNANCE TRAINING
Session Three: Financial Management and Financial Reports
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