Financial reporting for directors

Financial reporting helps directors understand the corporation's financial position, monitor performance and make informed decisions.

There are 2 main types of financial reports: internal reports and external reports. Both are important, but they serve different purposes.

Internal reports (Management accounts)

Internal reports are often called management accounts. They are for directors and managers to support decision-making throughout the year. There are no strict rules about what they should look like and what information is in them.

Management accounts may include:

• budget versus actual expenditure reports
• cash flow forecasts
• income and expenditure reports
• reports on particular programs, projects or funding agreements
• key financial performance indicators

Some of the questions directors should be able to answer after reading the management accounts are:

• Do we have enough cash to pay our bills?
• Where is our grant being spent?
• How much is owing to outsiders?
• How much profit is being earned?
• Where does our money come from (sources of revenue)?
• What are our major expenses?
• What happens to our profit if revenues fall or expenses rise?
• Are we spending (actual expenses) more or less than what we planned (budgeted)?

External reports (Financial accounts)

Financial accounts are mostly for people outside the board and management, such as members, funding bodies and regulators like ORIC.

The way the information is presented is called ‘financial statements’.

There are rules about how financial statements should look and what information must be in them. These rules are called the Australian Accounting Standards.

Financial statements generally consist of:

• profit and loss statement (or income statement) [link]
• balance sheet (or statement of financial position) [link]
• statement of cash flows [link]
• notes to the financial statements.

These statements form the financial report that corporations are required to prepare each financial year and provide. These reports help demonstrate accountability and may be used to meet regulatory and funding obligations.