RSM New Zealand

Bouquets, brickbats, and making your financial statements more beautiful?

So, you are a small to medium size charity, (Tier 3 or 4 PBE) and you have transitioned to the new simple format reporting. 

For most, it was no doubt a bit of a strain as it was a change from what you have done before; but you have followed the optional templates provided by the External Reporting Board (XRB) and got there.  Well done!  Let’s not stop there.  It is now worth considering how successful these templates are at communicating to your readers, which is their primary purpose, and most importantly; how you can make them even better in future.

The vast majority of the 27,834 registered charities (as at date of writing) fall into the Tier 3 or 4 categories.  This means they have annual operating expenditure of between $125,000 and $2m (Tier 3), or under $125,000 (Tier 4).  The registered charities that fall into these levels account for around 96% of the total population.  Hence there are a lot of annual financial statements that are now required to be prepared and presented in compliance with the new Public Benefit Entity (PBE) Simple Format Reporting Accrual or Cash.

Bouquets

Firstly, the bouquets. Well done to the accounting standard-setting team at the XRB.   Any new form of mandatory compliance such as an accounting standard is unlikely to be greeted with unanimous smiling faces and open arms.  However now that one has had the chance to stand back and look objectively at what has changed, the Tier 3 & 4 standards have, in our view, achieved a good balance between consistent, comparable, and common-sense accounting treatment without being overly complex.  No mean feat.  

Also worthy of a bouquet, the XRB, for not only developing the new PBE accounting standards (the primary role of a standard setter, after all) but they also went the extra step and provided optional templates to make it easier for people adopting these for the first time. And not only that, they provided these in a variety of formats. Pragmatic assistance – that gets our vote for a gold star every time.   

Brickbats?

OK, we are probably going to make ourselves unpopular here with some, but pragmatism isn’t always pretty and if you just follow the optional templates as is, you end up with ugly financial statements, in our humble opinion.   (There we go; we’ve said it. That’s us probably off the XRB Christmas card list!).

Does ugly matter if the resultant financial statements (or more correctly; annual performance report) are in compliance with the new accounting standards?  Maybe not. Especially given they have allowed numerous entities to successfully get their first set of compliant financial statements prepared, relatively painlessly and on time. 

However, if one stands a little further back and looks at the communicative value of the information presented then we suggest some small tweaks could assist.   In our experience, many people do not like looking at numbers. (Hard for accountants to admit but there you have it).   Therefore, doing your utmost to present financial information in a way that is as clean and attractive in style as possible will assist with making people want to read it, and also to hopefully better understand the information that is being presented. 

How do we make our performance report more beautiful?

None of these are rocket science or require a qualification in marketing, communications and design.  However here are some simple suggestions from the RSM crew:

Kill those gridlines

These are great if you are writing something in a box and want to ensure people put it in the correct box i.e. lining up the words and numbers.  However, visually a page of gridlines can clutter the view and detract from the information that is presented. 

Font size

Is it just us or is everything getting smaller these days?  Maybe it is the impact of more and more people living their lives via their mobile phones. We suggest you may want to increase the font size to make the information presented easier to read.  Anything easier on the eye is more likely to get read!

Get rid of redundant information

If you don’t have a budget for the year then why still have an empty budget column on every page?  Likewise, if your entity does not have a certain category of information that is on the optional template then why include it?  We’ve seen some performance reports with more blank categories on their primary statements than actual information.  This just clutters and confuses. 

Kill those red asterisks

We understand that these are designed on the template to denote mandatory information.  However, the impact of leaving these on the final product is to confuse the average reader who is left searching for what the red asterisk may mean, then left even more confused when they can’t find any reference to what the red asterisk may mean.

Delete any other instructions

Nothing kills credibility of the final information like reading a line in an annual performance report that says “OR (Delete one not applicable to the entity)”.  This shouldn’t make a difference but it is simple little things like this that can irrationally and significantly detract from the good information that you do want people to read and take note of.  

Make sure your policies and notes reflect your organisation

Many organisations will have slight differences in how they do things.  If this is the case then ensure that your notes and policies correctly reflect your organisation’s personality and situation. 

There is nothing wrong with adding more information

Most organisations have some unique features.  If these are significant and it is helpful for readers to understand more about them then go ahead and add additional note disclosures. 

But don’t delete the mandatory

Some information on the templates should not be deleted. For example the legal name of the entity and the entity’s purpose or mission is mandatorily required and for good reason!

Only add notes if the notes add something

On the flipside of the above advice; there is nothing more annoying than being referred to a supposed detailed note from a primary statement only to find that the note tells you nothing more than the description and amount that was already shown on the primary statement. If you are going to have such a note then at least explain what the inventory is or break it down into the different main sub-components or types of inventory that make up the overall balance.  Otherwise why have the note at all?

Summary

Well done on getting past your first-year end under the new reporting standards. Now it is time to objectively look at your annual performance report. 

  • Is it as good at communicating the information as it can be?
  • Do your readers and wider stakeholders understand the information presented? 
  • Have you asked them? 

Be brave. 

Look for ways to make this piece of mandatory compliance the most useful communicative tool it can be for the ongoing success of your organisation.  It’s already probably good. Can you make it better?

We suspect you probably can for the benefit of all.

 

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Authors

Craig Fisher
Consultant