Definition: Financial Statements1
The statements of the financial activities of the organizations, normally including:
- a balance sheet, which shows assets, liabilities and equity at year-end;
- a statement of income, which shows the results of operations for the year;
- a statement of retained earnings, which summarizes changes in retained earnings during the year;
- a statement of cash flows, which shows operating, investing, and financing activities, and how these activities affect the cash position; and,
- notes to financial statements, which are an integral part of financial statements, and which provide additional explanations and details concerning financial statement items.
Why is it important to complete annual financial statements? Overseeing the financial affairs of a nonprofit or charitable organization is one of the most important roles of the board of directors, and financial statements are the main avenue of communication about the organization’s financial status.2 For the board, financial statements present information that is essential when making strategic decisions about the future of the organization.3 They typically consist of the four basic financial reports outlined above, accompanied by year-end comments from the auditor, including any notes. Financial statements can also serve as important communication tools which the organization can use to share pertinent financial information with its stakeholders.
Tip: Because the quality of your organization’s financial statements depends on the quality of the information collected regularly throughout the year, it may be helpful to engage an accountant to set up statements to make sure the format is correct and that staff know what information needs to be tracked.
From "Accreditation Preparation Workbook Section B: Financial Accountability & Transparency," Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.
- “Standards Program Definitions,” Imagine Canada, May 2011.
- “A Guide to Financial Statements of Not-for-Profit Organizations: Questions for Directors to Ask,” The Canadian Institute of Chartered Accountants, 2012.
- “Financial Responsibilities of Not-for-Profit Boards: A Self-Guided Workbook,” The Muttart Foundation and Alberta Culture and Community Spirit, 2008.
Standards Reference Guide