Improving Financial Literacy

The following article will present directors with common questions they should be asking their general manager, CFO and external auditor prior to signing off on the external financial statements. 

The questions have been compiled specifically for ClubsNSW by Stephen Marsden, who holds a Master of Business, is a member of Charted Accountants AUS/NZ and the Australian Institute of Company Directors, is a Fellow of the Taxation Institute of Australia and a full-time lecturer at QUT Business School in Brisbane.

Financial statements form part of a club's annual report, which are presented to members at the club’s Annual General Meeting (AGM) and are required to be lodged with the appropriate regulator. This is either the Office of Fair Trading in the case of an incorporated association, or ASIC in the case of a company limited by guarantee.

For this reason, it is important to ensure that the appropriate controls, processes and resources are in place for the accounting personnel to be able to prepare a set of financial statements. 

Directors must ask several questions about the club's compliance with its legal framework — whether it be the NSW Incorporated Associations Act (2009) or the Corporations Act (2001).

Furthermore, as part of the director’s declaration, there is a requirement imposed on directors to ensure that the club is solvent and, as such, able to pay its debts as and when they fall due. This is referred to as the "solvency statement".

The following questions do not attempt to examine all areas that may be ‘critical’ to every club. Likewise, there may be many questions that are not relevant or applicable to every club. The questions that would be asked by directors of a large, licensed club may not be relevant for directors of a small, unlicensed sporting club. 

Questions you should consider asking before approving external financial statements:

1.    Who prepared the club's annual external financial statements? 

2.    Was this person appropriately qualified with experience in drafting a set of external financial statements in accordance with the Accounting Standards? Typically, this will be the club's CFO.

3.    Has the club maintained appropriate accounting records and all supporting documents such as tax invoices, receipts, bank statements and schedules (e.g. depreciation schedule and fixed asset register)? A club is required to maintain these documents for a period of seven years.

4.    Have there been any new Accounting Standards issued in the past 12 months which could have impacted on the figures of the club this year compared to previous years? If there has been a new accounting standard issued, what was the main impact of this standard on the club’s financial statements?

5.    Who reviewed the financial statements?

6.    Was a model template used in drafting the external financial statements? Most accounting firms have free model financial statements on their website that can be downloaded that show all the relevant disclosures required under the AASB Accounting Standards.

7.    In the opinion of the person who has prepared the external financial statements, are the external financial statements prepared in accordance with the AASB Accounting Standards to give a true and fair view? It is becoming increasingly common for club boards to ask for this response to be minuted and even for the CFO to provide a written declaration to be attached to the Minutes of Meeting.

8.    In the case of a club that is an incorporated association, have the external financial statements complied with the reporting requirements of the NSW Associations Incorporations Act (2009)?

9.    In the case of a club that is a company limited by guarantee, have the external financial statements complied with the reporting requirements of the Corporations Act (2001)?

10.    When are the financial statements required to be lodged with the appropriate regulator? Who is the person responsible for lodging the accounts and paying the appropriate lodgement fee?

11.    When is the Annual General Meeting scheduled for? Is the due date before the date required by the relevant Act and in the club’s constitution?

12.    Have there been any material or significant post-balance date events (from end of the reporting period to the date that the accounts are about to be signed off) that would materially impact on the year-end figures contained in the financial statements?

13.    Have we checked with our solicitors to ensure there are no outstanding legal matters or claims being made against the company at the reporting date?

14.    Are these internal controls regularly reviewed to ensure compliance by staff at all levels?

15.    Have there been any major breaches of internal controls? If so, please provide details.

It's important to exercise due diligence and thoroughly review the financial statements to ensure that they are accurate, complete and in compliance with applicable accounting standards and regulatory requirements. Consult with professional advisors, including auditors and legal counsel, if needed, to ensure that you are fulfilling your fiduciary duty as a director.

All directors, including club directors, must be financially literate in order to fulfil their duties and responsibilities to the organisations they govern. 

The Club Education Institute (CEI) offers a Governance Refresher course if you wish to explore and improve your financial literacy and gain access to relevant, easy-to-use tools for your club. This course covers director duties and responsibilities, and offers additional questions that directors should be asking of auditors to assess the club's solvency position as well as on the monthly accounts. This ensures that directors can satisfy themselves that they understand their governance responsibilities and the financial performance of their club, as well as their statutory obligations as a director.

If you would like to register your board for a Governance Refresher Course, please email Reyna Mendes here.