Understanding your Budget PL statement and Balance Sheet

Understanding your Budget, P&L statement and Balance Sheet September 2017 Bob Campbell Registered Auditor, Registered Tax Agent, CA, CPA, MSW MAICD Director, Australian Audit Pty Ltd. rjcampbell@ausaudit. com. au

OUTLINE • UNDERSTANDING YOUR FINANCIAL STATEMENTS • DEVELOPING A FINANCIAL MODEL OF YOUR ORGANISATION • DEVELOPING A BUDGET FROM THAT FINANCIAL MODEL • MONITORING KEY PERFORMANCE INDICATORS • COMMUNICATING YOUR FINANCIAL RESULTS. IF YOU HAVE A QUESTION SOMEONE ELSE PROBABLY HAS THE SAME QUESTION SO PLEASE ASK IT AS WE GO.

YOUR ANNUAL FINANCIAL STATEMENTS Basis of preparation – Cash or Accrual • Cash – receipts are recorded during the period money is received, and expenses are recorded in the period in which money is actually paid. • • Statement of receipts and payments Statement of reconciled bank account balances Statement of assets and liabilities. Note- explaining that the cash basis of accounting has been adopted • Accrual - revenue and expenses are recorded when obligations are incurred. • • • Accounting Standards are applied to recognise Assets, Liabilities, Income & Expenses Statement of Profit or Loss & Other Comprehensive Income Statement of Financial Position Statement of Cash Flows Statement of Changes in Equity Notes – explaining the accounting standards & policies adopted & the accrual basis

YOUR ANNUAL FINANCIAL STATEMENTS Special Purpose or General Purpose ? • General Purpose - designed for any reader – accrual basis and all relevant Australian Accounting standards apply • Special Purpose – designed for particular readers • Your members and in the form required by your constitution • Your regulatory body – Department of Commerce or ACNC • ACNC: If your revenue is less than $250, 000, you may use Cash basis • ACNC: If your revenue is greater than $250, 000 ACNC require Accrual basis • • • AASB 101, Presentation of Financial Statements AASB 107, Statement of Cash Flows AASB 108, Accounting Policies, Changes in Accounting Estimates and Errors AASB 1031, Materiality AASB 1048, Interpretation of Standards AASB 1054, Australian Additional Disclosures.

YOUR ANNUAL FINANCIAL STATEMENTS Are they reliable? • Financial Statements are normally reliable if internal controls are effective • Internal controls include but are not limited to: • Preparation by competent qualified bookkeeper & reviewed by an accountant • Bank reconciliation by bookkeeper & review by another person for errors • Two signatories / authorisers of all transactions. • Must include all the transactions for the period • • Very relevant to all significant accrual transactions such as Accrued Wages , Accrued Expenses & Prepaid Expenses. Leave provision movements Income received in Advance – such as grants & fees

YOUR ANNUAL FINANCIAL STATEMENTS The Annual Board Report & Declaration • The Annual Board Report • States the Surplus or Loss for the Year • Describes the major activities for the Year • Points out that the accounting policies applied are set out in Note 1 to the accounts. • The Annual Declaration by the Board • That the financial report is a true & fair view of the financial position & performance of the Organisation • That operations have been conducted in accordance with the constitution • There are reasonable grounds to believe that the Organisation will be able to pay its debts as and when they fall due.

YOUR ANNUAL FINANCIAL STATEMENTS The Statement of Profit or Loss and Other Comprehensive Income

YOUR ANNUAL FINANCIAL STATEMENTS The Statement of Financial Position

YOUR ANNUAL FINANCIAL STATEMENTS The Statement of Cash Flows

YOUR ANNUAL FINANCIAL STATEMENTS The Statement of Changes in Equity

Uncommitted funds • Current assets less Current liabilities • Current Assets: The funds you have or have a right to receive as income in the next 12 months • Less • Current Liabilities: The funds that you have a present obligation to pay out in the next 12 months • These are your savings to manage financial risks • You would expect to have at least enough to cover 90 days planned expenditure. • This increases if you make a surplus and decreases if you make a loss • It is what you draw upon to buy property plant & equipment

YOUR ANNUAL FINANCIAL STATEMENTS The Statement of Financial Position

Understanding your Budget • Your budget indicates how much you expect to spend in the next period (usually the current financial year) • Your expected Income • Your expected Staff costs • Your expected Program costs • Your expected Administration Costs • Your expected financial surplus or financial loss • As a Guide as a minimum it should be 5% to 10% of your Income.

Your Budget • Prepared before the end of your current financial year • Approved by the Board or Management Board • States the assumptions for income and expenditure • Should reflect either the accrual or cash basis of accounting used • Your bookkeeper must understand which you are using. • Compares the current year to the next year & explains the difference • Used to compare actual and budgeted income and expenditure • Explains why there is a difference each month.

MONITORING KEY PERFORMANCE INDICATORS

COMMUNICATING YOUR FINANCIAL RESULTS. • Use Summaries rather than detailed reports • Treasurer or Finance Board to review detailed reports • Highlight major issues in the Financial Summary • Identify any proposed corrective actions • Use Graphs where possible (eg Uncommitted Funds) • Check that people understand your financial reports • Have a seminar to explain how to use the financial report

Questions