November 9, 2017 by Denise Jones

Improving the financial literacy of board members

For board members, understanding the organization’s financial position is a necessity for effective oversight, as well as a fiduciary duty. But when it comes to the financial discussions, we see many board members “zone out.” Without an appropriate level of understanding, the right questions may never be asked, potentially putting the organization at financial risk. Management and board leadership need to collaborate to ensure all board members have at least a basic understanding of how the numbers work, the relevant metrics and the reasons they are important for the organization.

Every board is unique. There is no magic pill, but there are steps that can be taken to ensure everyone reaches an appropriate level of financial literacy. It is all about clarity. With that in mind, here are some tools to assist in improving the financial literacy of board members.

1. Provide a reference guide

Every industry and organization has its own language for financial programs and reporting. When this lingo is provided in an easy-to-reference format, it removes the guessing and allows for more meaningful discussions. An easy-to-use reference guide is a great way to share key terms, acronyms and ratios.

2. Put the numbers in context

Simply providing financial statements is no longer enough. It’s also important to determine what they say. Analysis should include ratios and trends that compare (a) current financials to previous numbers, (b) monthly and annual results to budget and (c) rolling forecasts for future expense. The use of KPIs (key performance indicators) will act as a compass to assist the board in understanding whether the organization is on the right path to achieve its financial goals and objectives. The board should determine what it needs to see on a regular basis, and management should provide the education necessary to digest that information.

3. Make it visual

A picture is worth a thousand words. Studies show that our minds retain only 10 per cent of what we hear, but 50 per cent of what we see. Therefore, it can be powerful to use graphs, charts and other visual diagrams to highlight key information and changes. Rather than simply read about changes in revenues/expenses and budget status, this information can be readily presented in a chart or graph. The simple addition of stoplight or arrows to trend analysis can illustrate whether these are according to plan (green), of concern (yellow) or off the rails (red).

4. Use a dashboard

Dashboards can make a world of difference. They can consolidate and visualize the key numbers and performance indicators for the organization in a single page.

5. Get educated

Include the basics of reading financial statements and reports, along with your reference guide, as part of new board member orientation. (Current board members may also need a refresher.) Review your KPIs and other metrics to determine their importance to the organization on an annual basis. You should also use your external auditors/advisors to review best practices in board reporting for your organization – and consider including them in your training sessions.

Denise Jones, FCPA, FCA, has been a partner at Collins Barrow Durham LLP since 2003. She oversees all audit engagements undertaken by CB Durham and serves as the professional standards partner for the firm.

Meet the Author

Denise Jones Denise Jones
Courtice, Ontario
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