Financial statements are usually prepared by management and presented to the board. Directors/trustees, however, are responsible for making sure that the financial statements present a full and accurate position of the organisation's financial situation and that any variants from budget are fully explained.
An organisation's financial statements are not just used to monitor how things are going. They are essential for borrowing money and reporting to many stakeholders including owners and funders.
Processes that help establish good financial reporting include:
- Using GAAP (Generally Accepted Accounting Practice) and a good accounting process
- Having an Audit Committee that thoroughly reviews standards and how the organisation manages its financial reporting
The most common failings in financial statements are overstatements of net profit and understatement of borrowings.
While all directors/trustees are not expected to be expert accountants, they are expected to read financial reports with a strong level of interest and enquiry, and to understand the importance of complying with acceptable accounting standards.