On the money

accounts provide the information needed to manage the affairs of a registered social landlord, so they should be of great interest to its board. But do board members understand the meaning behind the figures?

Accounts should answer these questions:

• are we on track?
• do we comply with lenders’ requirements?
• do we know if we will meet our financial predictions?
• are key financial risks identified and are performance indicators in line with what is expected?
• are our developments on schedule?
• is any action to correct problems working?
• are the benefits of change programmes being realised?

To help board members, the Chartered Institute of Public Finance and Accountancy’s RSL panel has issued a checklist of what to look for in accounts. The checklist examines the income and expenditure account, the balance sheet, loan covenant reports and the cashflow forecast.

The income and expenditure account is critical to establishing how things stand at various points of the year and how these compare with past equivalent periods.

Variations and trends are where the real information lies, so board members need to ask whether the analysis and any explanatory graphs provided are highlighting emerging risks. Where action is under way to rectify unfavourable trends, these should be followed through and monitored to check they are working.

The balance sheet can be daunting, particularly because it will be showing a snapshot of a point in time that will have passed when it is discussed.

But key issues, such as the strength of the RSL’s underlying financial position, can be gleaned from it.

What’s important here is the growth in the asset base, the effectiveness of stock management and whether the association’s long-term borrowing strategy matches the figures in it.

The balance sheet can be daunting, but information on key issues can be gleaned from it

Board members must also consider financial risks over the adequacy of the financial reserves available to the association and risks to the income stream from bad debts and write-offs.

The scale and nature of the private finance agreed by the RSL is usually covered in a loan covenant report. Again, this needs to be discussed and board members must be satisfied that all covenants with funders have been complied with.

The management accounts are completed with the cashflow forecast, which sets out predicted cashflows in and out of an association over the coming months.

Staff and contractors have to be paid on time, so cash management should be efficient and any short-term borrowing costs are minimised.

Board members will be looking to see whether the association is performing well against benchmarks and that disposals and acquisitions are in line with planned development programmes.

Reading the accounts is a vital job for board members if they are to take the right decisions.

The first step is to know what questions to ask and make sure the right level of detail is being presented to the board, so that the answers to the key questions are visible.