Although financial accounting standards are set out to provide consistency, the story behind a non-profit’s financial statements do not present the same story as corporate financial statements. It is important to discuss the presentation of accounts, so that the entity is comfortable with the presentation being true and fair as it pertains to its activity. For example, a non-profit’s performance cannot be measured by the bottom line. The definition of a ‘profit’ on the income statement represents a ‘surplus’ for a non-profit, and is no indication of financial performance. It is perfectly acceptable to request to include supplementary notes to explain these figures further in the context of a non-profit.
A further example relates to the comparison of expenses. Generally in the for profit world, it is beneficial to reduce expenses. In the non-profit space, an increase of indirect expenses is not indicative of poor performance, but could be directly related to approved programme growth. Therefore it is important that both you and the auditor are comfortable with the presentation of accounts, because you will have to be able to explain it to all key stakeholders.
Presentation and Engagement
It is important for the Auditor to present the financial statements to your senior management, your finance sub-committee and then finally to the Board. The Finance Director must also assist to answer queries, during these presentations, to provide clarification about day to day financial activity during the year.
This presentation will fuel discussion around activity and raise issues for consideration. It also helps to encourage a wider audience to become aware of the financial backbone of the organisation. This helps to build buy-in, into the finance process and financial strategy of the organisation. It also allows your programmatic team to be able to reflect on their activities, and how this fits within the organisational financial story for the year around successes and potential future impact.
See the following related resources in this series:
For a look at the process from the beginning, see: The External Financial Audit Process Part 1: Preparation and The External Financial Audit Process Part 2: What to expect onsite
Author: Soraya Joonas, Finance Director at Inyathelo. Extract from the article first posted on the Inyathelo Blogspot on 6 June 2016.