Improving your NFP's financial reporting

By Mark Harrison - March 14, 2018

In November 2017 the AASB released a paper examining the options for improving NFP financial reporting. There is no doubt the discussion on such a topic is needed, and the paper contains very valid points for improvement of regulation, consistency of reporting across organisations, the needs of financial statement users and other related issues.

And in time the AASB, and the ACNC, are likely to provide further guidance and commentary to assist organisations in the sector.

But why should organisations wait for the next authoritative instalment, sometime in the future? The onus is on each board and their management to produce readable, relevant and compliant financial reports to assist the various stakeholders understand their work, resources, plans and outcomes. From my perspective, most organisations are very good at producing compliant financial statements, but too often these fall short of being readable or relevant.

So the challenge is how to improve financial reporting while remaining compliant within the current framework? The following is a series of simple thoughts for all NFP’s to consider in order to improve their annual financial statements:

1) Remove unnecessary information

Most companies limited by guarantee registered with the ACNC still include a directors’ report, however, these are not required under the ACNC legislation. While some of the information may be of relevance to good corporate governance this can be better housed within an organisations website or as a minimum the report revised to provide meaningful insights to an organisations strategy.

The volume of notes expands annually, but many notes are not required or can be simplified. Review financial statements, particularly the policy notes and notes to the statements for duplication of information, disclosure of immaterial items and standard text that is not relevant to the current year’s disclosures and remove such.

For those entities issuing general purpose financial reports, consider adopting the Reduced Disclosure Regime (‘RDR’) to reduce the number of notes. NFPs generally meet the necessary criteria to apply RDR and Guidance as to the disclosures notes that can be excluded through the adoption of RDR have been helpfully identified by the Standard Setter by way of shaded text in the relevant Accounting Standard are identified in AASB 1053.

2) Position information logically

The typical lay out of key statements, pages of policy notes and numerous notes, while logical to accountants, is not likely to resonate with too many others. Consider the users and seek to group information in a meaningful way.

The grouping of policy notes with the associated financial disclosure is a means to assist users to relate a balance to the underlying principles easily.

Another opportunity also exists to group notes so that they are aggregated with other similar information. For example, after the key statements present groups of information to address operating performance, assets and liabilities, and then financial risks.

3) Jargon

Most financial reporting templates include lots of accounting jargon (mine included). While much of it is thought to be necessary for compliance, often this is not the case. Where ever possible challenge the use of terminology, seek a synonym that non accountants can understand or as a minimum include a concise, plain English definition of the terms that come only from accounting standards.

4) Add information

That’s right, add more information. Accessibility of financial reporting is not solely based on reducing the length of the financial report. There are numerous opportunities to add information to increase readability and relevance.

Consider breaking down information further. A dissection of revenue by business unit is interesting, however include it within a table of contribution by business units and it is of increased relevance. People costs is normally a significant amount, disclosing the expense by business unit or focus area and the greater insights to an organisation work can be obtained.

Include information in a means that is easier to understand, whether that be a graph or an infographic, to allow easy comparison or focus.

Include qualitative information. Organisations should be proud of their outcomes, include measures of effort and success to communicate what is behind the financial metrics.

Hopefully the above challenges all organisations to move beyond compliant reporting and to meaningful  financial reporting.

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