Twelve Tips for Interpreting Accounts of a charity

Twelve Tips for Interpreting Accounts of a Charity

Twelve Tips for Interpreting Accounts of a Charity

A charity is an organization that has to benefit the public. It can be a charity educating the underprivileged, removing poverty, or helping with health issues. Overall, it has to establish for the public benefit. Charities must be set up according to the laws laid by the commission, and they cannot make profits. The excess money a charity has earned has to go towards the purpose set up. There will be employed, and managerial staff, but volunteer trustees will monitor the charity.

Looking at a set of annual accounts or monthly management accounts can be a hazard if you do not know what you are looking to learn.

The Annual Report & Financial Statements

The trustees’ report includes the activities and achievements over the last year. It is always worth reading, as it should tell the previous year’s story, its mission and vision, and the funding issues.

The income and expenditure account, profit and loss account, or the statement of financial activity (SOFA) in the UK illustrates the organization’s activities over a period, usually 12 months.

The balance sheet (UK) or statement of financial position of the organization’s assets and liabilities at a particular time, i.e., how much it is worth. It is often the last day of the financial year.

The financial statements need auditing for larger charities if not examined by the independent examiner. The basis of independent examination is as follows.

Twelve Tips for Interpreting Accounts of a Charity

Examiner’s Report to the

Respective Responsibilities of Trustees and Examiner

As the trustees, you are responsible for preparing the financial statements. The charity’s trust considers that an audit is not required for this year (under section 43(2) of the Charities Act 1993 (the 1993 Act) and that an independent examination is needed.

It is your responsibility to

• Examine the accounts under section 43 (3) (a) of the Act
• To follow the procedures specified in the General Directions given by the Charity Commission under section (43) (7) (b) of the Act.
• And to state, whether particular matters come to our attention

Basis of independent examination

Our examination was carried out following the General Directions given by the Charity Commissioners. The inspection includes the review of the accounting records kept by the charity. And a comparison of the accounts presented with these records. It also includes consideration of any unusual items or disclosures in the reports and seeking explanations from you as trustees concerning any such matters. The procedures undertaken do not provide all the evidence required in an audit; consequently, we do not express an audit opinion on the view given by the accounts.

Independent examiner’s statement

In connection with our examination, no matter has come to our attention

This gives us reasonable cause to believe that any material respects the requirements.

to keep accounting records under section 41 of the Act

And better life

To prepare accounts that accord with the accounting records and comply with the accounting requirements of the Act.

Have not been met, or

 The statement of accounts does not comply with any requirements of Regulation 3 of the Charity (Accounts and Reports). Rules 2000, except the requirements specified in subparagraphs (a) and (b) of paragraph (5) of that regulation or

 Which, in our opinion, attention should draw to enable a proper understanding of the accounts reached. 

Analysis of income and expenditure

• Is there a surplus/profit or deficit/loss for the year/year?
• How does actual income compare to last year’s budget and comparable period?
• What are the critical income variances, and why?
• How does actual expenditure compare to last year’s budget and comparable period?
• What are the critical expenditure variances, and why?
• What is the latest forecast for the entire year?

Analysis of the balance sheet/statement of financial position

• What is the total value of funds?
• What is the split between restricted and unrestricted funds? What is the level of the general reserve?
• What was done to address any shortfall in reserves?
• How much cash is there? Is it sufficient to run the charity?
• Are there net current assets or net current liabilities (not healthy, likely to mean running on loans)?
• How sustainable is the organization over the medium term?