5 Questions about the Annual Report that every Trustee should ask
With many charities completing their annual reports at this time of year, I’m highlighting five questions every trustee should be asking. I have restricted my answer to each question to EXACTLY (!) 100 words so I hope you’ll enjoy these five short tips:
1.What about the numbers?
Trustees should be receiving financial information throughout the year and usually at every board meeting. This should include the latest management accounts providing sufficient detail on the financial performance of the charity, balance sheet and cash flows. On completion of the annual report, there may well be a difference between what has previously been reported as a financial result in the management accounts and the result disclosed in the annual report.
My recommendation is for trustees to be provided with a reconciliation of the surplus previously reported in the management accounts to what is being reported in the annual report.
2. Would the management team sign this?
When trustees are being asked to approve the annual report, they are also usually requested to approve a letter of representation for the auditors. As well as the letter acknowledging the trustees’ responsibilities for the preparation of the financial statements, it also usually confirms that there has been access given to the auditors for all relevant and additional information and unrestricted access to persons within the charity from whom it was necessary to obtain audit evidence.
My recommendation is for trustees to ask the management team whether they are satisfied with the representations being made in the letter of representation.
3.What’s the evidence for you preparing the annual accounts on the going concern basis?
When trustees are approving the annual accounts, they also usually provide an assessment that the charity is able to continue as a going concern. Trustees should consider all available information about the future, covering at least 12 months from the date on which the annual accounts are being approved.
My recommendation is for management to prepare a paper that documents consideration of the going concern basis at the same time as the annual report is approved. The future is uncertain, so assumptions will need to be made and documented: a good starting point is to prepare a cash flow forecast.
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4. Have you heard from the auditors?
When trustees are approving the annual accounts, they should also be provided with an Audit Findings Report (also known as a Management Letter) from the auditors. This important document provides feedback on the audit process as well as observations on controls, where relevant. An accompanying presentation from the auditors can also provide further insight and emphasis.
My recommendation is to always give the opportunity to your auditors to discuss the report. In fact, the Charity Governance Code recommends that the board, or audit committee, has the opportunity to meet the auditors without paid staff present at least once a year.
5. Are any of these numbers estimated?
Annual accounts may include amounts that cannot be calculated with certainty. This may be because the measurement or valuation of these amounts is dependent on the outcome of future events. It could be that the information needed to determine the amount cannot be obtained in a timely or cost effective manner. Examples include depreciation, accruals and provisions. Trustees need to be aware of the principal judgements and estimates being used in the annual accounts.
My recommendation is to ensure trustees are made aware of any potential impact (lower or higher) on the accounts of a change in any significant estimate.
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