Chapter 2.6: Annual Financial Reports
Every public organisation (including public companies, incorporated societies, territorial authorities, government departments and schools) is required by law to produce an annual report. This allows the organisation’s owners, employees, creditors and customers to review its performance and to make informed decisions about the future.
The Education Act 1989 requires schools to meet the following deadlines each year:
- 31 March: The board of trustees must have provided its draft financial statements to its auditor.
- 31 May: The board must have sent four copies of its annual report to the Local or Regional Office of the Ministry of Education for receipt prior to 31 May.
Annual reports for schools allow teachers, parents, students and the wider school community to review a school’s performance – ie, progress towards targets and what resources have been used. Members of Parliament, the Minister of Education and the Ministry of Education are also interested in how well individual schools and the wider school sector have performed.
The ministry has created model annual reports for a fictitious school called ‘Kiwi Park School’ which are available for download here. The models provide templates for schools to follow and illustrate the required content and suggested presentation of annual financial statements prepared in accordance with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS).
The models have the following features:
- comprehensive set of annual accounts, which you can adapt to suit your school’s needs
- clear differentiation between essential items that must be reported by all schools, those items that may be necessary, and those that are optional
- explanations of technical terms and concepts within the text
- use of differential reporting exemptions where applicable.
back to top
2.6.1 Income Statement
The Income Statement shows all income earned and expenses incurred during the year, resulting in an operating surplus (income more than expenses) or deficit (expenses more than income).
Boards of trustees should pay attention to the operating result. Schools should be making a small operating surplus each year, so that funds can be put aside for larger items, such as asset replacement, and to pay for unexpected expenses.
An operating deficit in one year may be planned for a specific purpose, eg, to address a particular educational need within the school. This is a useful means of utilising surpluses that have been accumulated in previous years and means that the school will have cash reserves set aside for this planned purpose.
Ongoing operating deficits can otherwise be an indicator of financial difficulty. They will use up any reserves the school may have built up and put it at risk of not being able to pay its bills. This means that the school needs to reduce its expenses or increase its income (or both) to make ends meet. The board of trustees should review the budget and financial commitments carefully with its financial advisors and may have to make difficult decisions to achieve an improved result and get the school back onto a sound financial footing.
back to top
2.6.2 Balance Sheet
The Balance Sheet, also called a Statement of Financial Position, shows the balances of the school’s assets, liabilities and public equity at the balance date of 31 December, the end of its financial year. A Balance Sheet can be described as a snapshot of the school’s financial position at a point in time.
Boards of trustees should pay attention to working capital - current assets less current liabilities - because this shows whether the school has enough cash or assets that could be converted to cash relatively easily to pay bills.
Some management accounts prepared during the year do not include all current liabilities eg, banking staffing balances - ask for this information regularly if it is not included in the management report. The board does not want any unpleasant surprises about their financial position at the end of the year.
Negative working capital (current liabilities are greater than current assets) is an indicator of financial difficulty. The school needs to rebuild its cash reserves by achieving consistent operating surpluses and may need to restructure debt. The board should act promptly and take financial advice as soon as an operating deficit is reported.
back to top
2.6.3 Cash Flow Statement
Only schools that don’t qualify for differential reporting (typically large schools - see Chapter 2.7.4 - Analysis of Variance) have to prepare a Cash Flow Statement for their financial report, but other schools may choose to prepare one.
A Cash Flow Statement shows cash flows in and out for three categories – operating, investing and financing.
Boards of trustees should pay attention to the net cash flows from operating activities, which should always be positive.
The board of trustees should act promptly and take financial advice as soon as a negative cash flow from operations is reported.
back to top
2.6.4 Notes
The notes to the financial statements provide more detailed information to inform the reader about the school’s financial performance.
If there is anything reported in the notes that a board of trustees member does not understand, they should ask for further explanation.