Transcript

Moving now to "Financial Statements and Reporting." Financial statements are an important tool in ensuring compliance with the Income Tax Act. Financial statements should possess the following essential characteristics to be useful. They need to be understandable, meaning that the information must be meaningful to the user. For example, using a category such as "miscellaneous expenses" does not give the user a good sense of how you spent your funds. They need to be relevant to the reader. This refers to whether the information can be used to make a difference in a decision being made. If the information is not current, for example, it would not allow the user, the CRA, or the public to base its decisions on the information provided. This is why we request that you provide your financial statements with your T3010 within 6 months of the end of your fiscal period.

The financial statements need to be reliable. They need to be reliable for the reader to base a decision on the information. The information must represent the events that they're supposed to represent; they must be verifiable, neutral, and conservative if they're estimated. The final characteristic is comparability. Organizations have to make sure that they're using the same accounting principle from year to year so that users can assess the charity's financial position and compare this position to previous years. If the organization changes its accounting principle, it should appear in the notes. This is important because different methods will produce different financial statement amounts.

"The Elements of Financial Statements." Two financial statements are required: the statement of assets and liabilities, which is the balance sheet, and the statement of revenues and expenditures, which is the income statement. If notes have been prepared with the financial statements, they must be submitted. They would include detailed information relating to accounting policies. For example, cash versus accrual, details of fixed assets, short and long term investments, and sources of revenue. Please note that the financial statements do not have to be audited, but they should be signed by your charity's treasurer if they are not audited.

The following information is available on our website, which gives you detailed information about financial statements. This webpage offers information in relation to the statements of assets and liabilities, so the current long-term and fixed assets, what is owed by the charity, the current and long-term liabilities, what is owed to the charity. What you don't see at the bottom of this example are the deficits and surpluses—the difference between the assets and liabilities.

"Revenues and Expenditures." This webpage offers information in relation to the statement of revenues and expenditures. The revenue details, what is earned or received, and the expense details, what is incurred and paid by the charity. This statement will also provide the differences between the revenues and expenditures, which will either be a surplus or a deficit for the charity.

"Why Are Financial Statements Important?" They must be filed with the annual Registered Charity Information Return, Form T3010-1. Together, they form the complete filing requirement for charities. They also provide information on the charity's programs, how they're spending their resources, and the sources of their funding. Furthermore, they are a monitoring tool to ensure compliance with the Income Tax Act, and they're available to the public—so, potential donors–on our website. And they will help board members make important decisions.