Welcome to the first of the 10 part series of training videos created by Creative Australia and designed for non-executive directors, arts and cultural organisations.

The purpose of the series is to assist directors to understand their fiduciary responsibilities with respect to financial management and reporting, and to assist directors to strengthen their skills in reading and interpreting financial information they receive.

The information advice in this series is general in nature and is targeted at for purpose arts organisations, which are registered with the Australian Charities and Not-for-profits Commission: the ACNC.

Regardless of the specific type of organisation you are working with, be it an incorporated association, a company limited by guarantee, or if it has deductible gift recipient DGR status, the key learnings in this series will be relevant to you.

We recommend that the videos are viewed in the order we've presented them in.

In particular, it is important that you have viewed videos three, four, and five before you view video six.

Should you have specific questions regarding the unique circumstances of your organisation, you're encouraged to seek further advice.

This first part is an introduction to this series, and we'll discuss the role of the board in the financial management of the organisation.

Part two is an introduction to financial reporting, and we will discuss the differences between financial accounting and management accounting.

The three primary financial statements being the income statement, balance sheet and cash flow statement, as well as the foundational accounting concept of accrual versus cash accounting.

Parts three, four, and five focus on the income statement, balance sheet, and cash flow statement respectively.

We will discuss the purpose of each statement, what tells you as a director, provide tips on how to read and interpret the information and suggest questions a director may want to ask.

Part six recaps the purposes of each of the financial statements and discusses how they relate to each other and how together they provide a complete picture of the financial health of the organisation.

It covers questions a director may want to ask about the overall financial position and provides some helpful financial ratios and benchmarks.

Part seven focuses on internal financial reporting to the board and what information the board should expect to receive from management, and when.

It also discusses the budget setting process and considerations a director may have when reviewing the budget.

Part eight will review the mandatory external financial reporting obligations the organisation has, including the preparation and lodgement of the financial reports with the ACNC and the critical role the directors have in approving these reports. It also explains what is an external audit and the types of audit opinions that may be provided.

Part nine covers the role and responsibilities of the audit and risk committee, or other similar subcommittees of the board and how they relate to the board.

It also discusses the board's role in ensuring the organisation has an effective system for managing risks and an adequate and effective system of internal controls.

The final part in this series, part 10, addresses the critical issue of insolvency.

Insolvency is where the organisation is unable to pay its obligations as and when they fall due. This part will discuss the duty of directors regarding insolvency, the potential consequences for directors of trading while insolvent, the key warning signs and suggestion as to when to seek professional advice.

As an introduction to this series, it is important to clarify the complimentary roles of the board versus management regarding financial management.

In short, the board of directors is responsible for governance and oversight while management is responsible for financial operations and execution.

The ACNC Act imposes various duties on directors or in the language used by the ACNC, Responsible People.

These duties include: the duty to act with reasonable care and diligence, the duty to ensure the financial affairs of the organisation are managed responsibly and the duty to not allow the organisation to operate while it is insolvent.

In practise, these duties require the directors to do the following things: To review and approve the financial statements that are lodged annually with the ACNC, to understand the financial reports, be financially literate and able to read and interpret the information.

Directors should ask informed questions of management and challenge the assumptions management have made when preparing the reports.

Directors must ensure the organisation complies with all applicable laws and regulations such as the ACNC Act, Australian Accounting Standards and Funding agreements.

Directors must also monitor the financial health and solvency of the organisation through regular reviews, budgets, financial reports, and forecasts.

Directors are also responsible for the appointment of the external auditors where required and ensuring that the auditor is independent.

The overriding responsibility of the directors is to establish a culture within the organisation of transparency, accountability, and compliance.

They should set the tone from the top and consistently emphasise the importance of sound financial stewardship.

They should create a culture where directors are encouraged to ask questions and to develop an open, constructive, and no surprises relationship with the chief executive and the management team.

Directors should set clear expectations of the management team regarding board reporting and assure a culture whereby every strategic decision taken includes consideration of the financial implications.

Ultimately, it is the board of directors who will be held accountable by stakeholders for the financial stewardship and success of the organisation.