With the advent of longer annual financial statements for some charities, thanks to the new financial reporting standards, it is worth considering how best to present the annual report and annual financial statements to stakeholders.   So what is required, and what is best practice?

The issue

I was prompted to ponder this annual reporting and transparency question recently when a charity client contacted me concerned how their annual financial statements had grown in size, and the practical impact on the size and resulting cost of their printed annual report. 

Of relevance is that this charity, a sporting trust that now falls into Tier 2 as they have annual expenditure exceeding $2m, has always taken great pride in their annual reports to stakeholders and ensured these are highly readable and interesting.  They do this as a deliberate attempt to communicate well and hence engender the ongoing support of their stakeholders.  They have consistently achieved this with the use of interesting reports, colour, pictures and graphical information, as well as the inclusion of their audited financial statements.  These have then been professionally printed to a high standard for distribution to their stakeholder community.  They are also made available on their website as a pdf for anyone interested to either view online or download if they want.

Their query below is likely to be a common one.

The query

Our current year’s financial statements under the new reporting standards are now 19 pages. This is a huge increase from the 6 pages that we had in last year’s annual report. What pages are actually legally required to be in our annual report as the cost of printing so many pages is obviously quite high. Is there also any legal requirement to provide paper copies or is ‘soft copy’ quite sufficient?

The response

Due to your organisation’s operational size and the new mandatory financial reporting standards your annual financial report has grown significantly.  The full set of financial statements, 19 pages in your case, are what are now legally required to meet your financial reporting obligations as a registered charity under the Charities Act 2005.   However, what you then have to do is determined by 2 things:

  1. Your legal requirements as a registered charity as specified by your regulator DIA Charities Services; and
  2. Your own constitutional or other obligations and requirements to your stakeholders

In order to comply with the Charities Act 2005, the charities regulator requires that a full set of compliant annual financial statements is provided for the public record.  If you are over the audit threshold of operating expenditure exceeding $1m then your financial statements are also required to be audited.  However, DIA Charities Services only require a soft copy to achieve this for publishing on their public website.  www.charities.govt.nz

Regarding your own requirements; that depends upon what your Constitution/rules and any other agreements such as funding agreements may require.  For most charities, and especially charitable trusts which don’t have membership obligations, this is usually largely under your control. 

While in the past most charities have provided full annual financial statements for their wider stakeholder audience, I suggest it may be time to reassess this.  Largely because I suspect most of your stakeholders are likely to be more interested in the non-financial information in your annual report. 

As an accountant who is supposed to like reading financial statements (not sure that is a universal truth!) the reality is that many people gloss over the financials and would rather see a summary of highlights of achievements, as well as words of wisdom from the governing body and CEO.  Many that are interested in the financial aspects are just interested in a high-level summary of this rather than the comprehensive detail of the full statutory financial statements.  In addition, technology has made access to full information if required much easier via providing information in soft copy on request, or better still; posting on a website available to anyone who wants to read it. 

Options

Hence the following are some possible options open to charities:

  1. For those that do want to still provide the full financial statements in a printed set an option is to scale down the size of the financial statements print size considerably to be able to fit more than one page per printed page. 
  2. Only print a small number of full annual reports and encourage people to access a soft copy on a website or deliver via email.  
  3. Do not include full financial statements in a printed set but instead refer readers to your website and/or DIA Charities Services website to see the full set.  Usually organisations that do this provide a very high level summary of finances in a printed set, often just via some summary diagrams or similar.  This is quite an acceptable practice as long as you clearly state where people can find the full audited set if they want them. 

What is best practice, or becoming the norm?

A hard question to answer with a lot of variety in the sector.  However, we are definitely seeing much less printed material and much greater use of website or email delivered annual reports.  While not helping the printing industry’s sustainability and profits this is efficient, makes distribution and access easy and inexpensive…and hopefully saves a few trees as well!