Finance: Outlook - Trustees must understand accounts

Too many trustees refuse to engage with accounting issues, writes Stephen Brooker.

I have recently been at several meetings (finalising the accounts for the year ended 31 March 2005) where the question has arisen of who is actually responsible for the accounts. At one, a trustee asked what the auditors recommended and appeared unwilling to engage in any further thought about the matter.

Auditors try hard to get their clients to accept responsibility for the preparation of their accounts, but there are still plenty of trustees who refuse to engage with the issues. It is the special responsibility of honorary treasurers, finance directors and chairmen of trustees to ensure that the accounts really are understood and owned by all the trustees - after all, they have a joint and several responsibility.

Trustees must adopt appropriate accounting policies. They bear ultimate responsibility for the accounting treatment of all items appearing in the accounts.

The increased emphasis on clear reporting is welcome as a contribution to transparency in the sector, and trustees need not be fearful.

I recently observed a model of how these things should be handled: a charity received notification of a very substantial legacy a few days before the year-end. The established accounting policy was to book income when it was reasonably certain to be received and could be measured with sufficient reliability. The finance manager was concerned as to whether to book it or not and raised the issue with the auditors at the closing meeting.The treasurer decided to defer until he had been in further contact with the executors in view of the materiality of the item and the need for up-to-date information. This was done just before the trustees' meeting to approve the accounts. The treasurer made the judgement that both tests were met and supplied his best estimate of the amount to book.

Several trustees initially expressed concern, saying they felt unable to make a judgement (and one even suggested obtaining legal advice), but the chairman had the treasurer explain both the accounting policy and the arguments for booking the amount he recommended. The accounts were duly approved.

Not all trustees need to be expert in accounting matters, but all treasurers and finance directors should be able and willing to take time to explain the accounting issues in everyday language that enables all the trustees to engage with the issues.

If that has not been done, trustees must ask whether they are giving enough time to the accounts; or alternatively, whether their treasurer or financial director is up to the task. Above all, they should not be relying blindly on the auditors to make nuanced judgements.

Stephen Brooker is a consultant specialising in governance and financial strategy


- Trustees are jointly and individually responsible for a charity's accounts

- Trustees do not need to be accounting experts, but treasurers must explain accounting issues to them in everyday language

- Trustees must not blindly rely on auditors to make judgements.

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