Most boards of directors receive periodic financial reports from their CEO. However, many board members have found most of these financial reports to be virtually incomprehensible and of little use. Directors have a right to demand from the CEO information that will help them monitor their organization’s financial performance.
Unfortunately, traditional statements such as the balance sheet and income statement often do not effectively allow directors to meet that requirement. While these statements are important and legally required in most jurisdictions, they are not governance reports.
To meet its fiduciary responsibility, therefore, the board requires a different type of statement – a simple and brief financial report that allows directors to compare how revenues are being generated and expenses being incurred by the organization compare to what they approved. In other words, directors need to see how things are progressing compared to the annual budget they previously approved. So the financial report they receive should be designed to highlight variances from the approved budget.
📓 Refer to the financial report sample in the course materials
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