The Strauss Blog

Basics of Financial Reporting for Board Members Without Financial Experience

The purpose of this article is to help board members who do not have financial experience understand their organization’s financial reporting and their personal responsibilities associated with that.

Responsibilities of Board Members

A recent quote in Trustee Magazine did a nice job of explaining the connection between financial reporting and board duties:

“A board member’s central purpose is to ensure that the organization’s resources are used to achieve its purposes. This includes the duties of care, loyalty and obedience.”

“A trustee has a responsibility to participate in decision-making on behalf of the organization… For example, members should require management to provide sufficient information to make an independent decision. If board members find that the information is invalid or incomplete, they are expected to ask questions about it.”[1]

Information Board Members Should Be Receiving

In order to meet your obligations as a board member, you should be receiving on a regular basis (monthly or quarterly):

  • Statement of Financial Position (Balance Sheet)[2]
  • Statement of Operations (Income Statement)
  • Bank Reconciliation and a copy of the bank statement for the month or quarter
  • General Ledger for the month or quarter
  • Investment Report as prepared by a third-party (on a quarterly basis)
  • GST/HST Return (form GST 34) and CRA Notice of Assessment (form T451)[2]
  • Statement of Account for Current Source Deductions, if your organization has any employees (form PD7A)

Good Board Members Ask Good Questions

If you have any questions or concerns about anything in these statements, it is your responsibility to ask questions. If you are uncomfortable with any of the answers, then it would be wise for you to have them noted in the minutes of the meeting.

Annual Financial Statement

A Board of Directors is responsible for recommending approval of the annual financial statements to the members of your organization. This means that you are responsible for knowing what is in this statement.

We recommend, to our clients, that prior to the Annual General Meeting (AGM) of your organization, your external accountant or auditor should present (either in-person or by conference call) to the board a draft copy of the financial statements. Two questions that should be asked, with the answer noted in the minutes:

    • Was a Letter to Management sent?If a Letter to Management was sent, identifying issues not disclosed in the Annual Financial Statement, about concerns and suggestions, you need to be certain you understand its contents and the actions being taken to address these concerns and suggestions, before you vote on recommending the annual financial statements.
    • Are there any other matters that should be brought to the attention of the board?

Further Reading

This article addresses only a few areas related to board financial stewardship and many other great resources are available including:

      • 20 Questions Directors of Not-for-profit Organizations Should Ask about Fiduciary is published by the Canadian Institute of Chartered Accountants (CICA) and can be downloaded;[3] three other of their 20 Questions series address governance, risk, plus strategy and planning;
      • Exposures Facing Officers and Directors of Non-Profit Organizations on our website (strauss.ca/exposures-facing-directors-and-officers-of-non-profit-organizations).

The above is provided for informational purposes only. It does not constitute accounting, or other professional advice, and you may not rely on it as such.


      [1]

trusteemag.com/trusteemag/html/WebExclusive0613legalduties.html

      (retrieved: February 25, 2014).

 

      [2] Not-for-profit organizations use different names for the names of some financial reports; the for-profit name appears within parentheses.

 

      [3] Board members are jointly and severally personally liable for any unpaid GST/HST and payroll source deductions.

 

      [4]

cica.ca/focus-on-practice-areas/governance-strategy-and-risk/not-for-profit-director-series/20-questions-series/item12325.pdf

    (retrieved February 26, 2014).