Interpreting and using financial information

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Interpreting and usingfinancial information

• Gert van der Linde, World Bank
• Uganda, Kampala
• May 21, 2004

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Interpreting and usingfinancial information

• Determining information needs
• Sources of information
• Importance of standards
• Getting the information
• Using the information
• Closure

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Determining information needs

• What information do we want and why?
• Trends in financial performance
• Trends in financial position
• Trends in cash flow sources and utilization
• Audit opinion
• Non-financial information e.g. service delivery
  trends
• Strategic direction

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Accountability Framework
How much? Quality? When? Cost?
Programs
REAL Performance Agreements
Accountable for what is controlled
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Sources of information

• Budgets
• Annual reports
• Annual financial statements
• Statement of financial position (balance sheet)
• Statement of financial performance (income
  statement)
• Cash flow statement
• Notes to the annual financial statements
• Strategic plans

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RSA Old input focus, no trends
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RSA progress Budget Information
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RSA progress Budget Information
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RSA progress Budget Information
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National Treasury Annual Report Performance
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Annual Report
Year-end 31 March 2002, Audited by 31 July 2002!
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National Treasury Income Statement
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National Treasury Balance Sheet
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Accounting Standards

• Accounting Standards Board
• Participate and use IFAC IPSAS to issue
  accounting standards
• Unresolved issues, e.g.
• Budget still on cash basis
• Capitalization of physical assets
• Accrual standard issues
• Non-exchange Revenue
• Social Policy Obligations
• Budget Reporting
• Heritage assets
• GFS/ESA 95 and IPSAS Harmonization

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Getting the Information

• Delineated the reporting entity introduced
  concept of ownership control into legal
  framework and requirement to produce annual
  consolidated financial statements
• Legal recognition for accounting standards
  established Accounting Standards Board
• Changed the audit cycle to be completed 5 months
  after y/e
• Introduced requirement for annual reports and
  established Ministers responsibility for tabling
  of audited financial information in Parliament
• Established control over the bank account
  configuration
• Established monthly reconciliation and reporting
  procedures, supported by good audit trails

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Using the information

• Trends in financial performance
• Trends in financial position
• Trends in cash flow sources and utilization
• Audit opinion
• Non-financial information e.g. service delivery
  trends
• Strategic direction

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Statement of Financial Performance

• The statement of financial performance shows
• how much revenue has been earned during the year
• the costs and expenses associated with earning
  that revenue and
• the net earnings (or loss) - how much the company
  earned (or lost).
• Key numbers
• revenue from products and services sold
• expenses, or costs, of doing business
• net earnings / (loss)
• To interpret this information, analyze trends in
• revenue
• gross profit
• operating income (operating profit)
• net earnings (net income, net profit)
• earnings per share

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Statement of financial position

• The statement of financial position shows a
  snapshot of
• what the company owns
• what the company owes
• what belongs to the owners (net worth)
• Assets should be equal to liabilities and owners
  equity.
• Key numbers
• assets (what the company owns)
• liabilities (what the company owes)
• owners equity (what belongs to the owners)
• To interpret this information, analyze trends in
• liquidity and levels of debt and inventory, e.g.
  the current ratio, a comparison of current assets
  with current liabilities
• relationship of this statement with the statement
  of financial performance, e.g. relationship of
  accounts receivable with sales inventory with
  the costs of sales
• time to collect money owed by customers
• time to pay debt to suppliers

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Statement of cash flow

• The statement of cash flow shows
• how cash is generated
• how cash is utilized
• how surplus cash is managed
• Key numbers
• Net cash provided (or used) by operating
  activities
• Net cash provided (or used) by investing
  activities
• Net cash provided (or used) by financing
  activities
• To interpret this information, analyze trends in
• cash from operating activities to determine how
  efficiently the company can produce and sell its
  primary product or service
• cash flows in relation to earnings figures (from
  the statement of financial performance). For
  example, if positive earnings does not turn into
  positive cash flows, the reasons and impact need
  to be understood.

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Other information

• Audit opinion
• Non-financial information e.g. service delivery
  trends
• Strategic direction

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Closure

• Communicate need
• Ensure legal framework supports information need
• See that the Executive gets the basics right
• Enforce sanctions
• It costs money to produce use it.
• Questions?

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