Accounting and Finance in Voluntary Sector

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According to Action on Hearing Loss, they have identified their risks as financial sustainability, recruitment and retention of staff, investment in infrastructure and their reputation and brand. They realised that sustaining income level is necessary to their financial sustainability. Therefore, they decided to manage the risk by pursuing multiple income producing strategies and considering the stage of the risks that related to the various income streams and maintain or grow the income levels. Additionally, to manage the risks of recruitment and retention of staff, they decided to let the employees enjoy the feeling of fulfilment so they can felt that they are supported and developed. They also will continue offering employees training, promotion and career development. To manage the risk of investment in infrastructure, they have to review and restructure their support service to offer core, internal service and cost-effective. Lastly, to increase the reputation and brand, they decided to invest more in electronic media to maximise the opportunities to present them as they are the organisation that working with deaf person. Besides that, they also need to keep a clear communication strategy to ensure their operations are effective and understood (Action on Hearing Loss, 2013).

In conclusion, risks management are identified by the trustees, who have been reviewed and the systems or procedures have been established. It is use to identify the potential risks and protect the assets of charity and ensure that the charity operate smoothly. Risks management is very important as the risks may bring serious impact to the charity, therefore, the trustees need to help to manage to reduce the harm.

Performance Analysis

Performance analysis is an objective way of recording performance, therefore the key elements of the performance can be quantified in an effective and consistent manner (Ispas.org, 2016). Financial performance analysis is a process of evaluating company’s financial statement, to obtain the financial status of the company and achieve effective decision making. Company financial performance analysis can be analysed by two methods. Firstly, comparative analysis, it can be classified to horizontal analysis and vertical analysis and second method is analysing by the use of ratios such as liquidity ratios, profitability ratios, efficiency ratios and more.

Liquidity ratios are the most fundamentally major set of ratios, since they measure the capability of a company’s operation, while profitability ratios are measuring the company’s profits (Accountingtools.com, 2016). Performance analysis is executed for commercial entities which are not appropriate and relevant for charities, since the profit concept is not suitable for charities. It is because the charity law requests charities have to use all the funds to further the charitable purposes (Vincent, 2015). As the report and accounts are the main statutory reporting mechanisms for charities, and the document includes the annual report of trustees and charity accounts. Meanwhile, the charity’s account should include SOFA, balance sheet, cash flow statement, notes to the account and the report of independent examiner or auditor. In addition, SOFA includes all the resources available to the charity and it replaced the commercial profit and loss accounts (Joy, McKenzie and Rotheroe, 2013).

Furthermore, ratio analysis is limited by potential limitations with the data and accounting in the financial statements, as the financial statements are highly standardized in terms of general format and presentation, and also highly aggregated in the information which is combined into a few figures in the accounts by many transactions and balances. This may limit the useful information and difficult for the reader to assess the components of business (Conceptual and regulatory framework, 2016). Therefore, this may consist of the errors and accounting mismanagement. Apart from this, ratio analysis could ignore the key elements of success of the company such as non-financial information (Limitations of Financial Statement Analysis, 2016).

In the light of Charity Navigator, they analysed financial performance metrics that about charity’s financial efficiency such as program expenses, administrative expenses, fundraising expenses and fundraising efficiency. To assess the program expenses of charity, they divide their program expenses by its general functional expenses. At the same time, they verify the administrative expenses stay reasonable and according to the total functional expenses of the charity and calculate it by comparing to the total functional expenses. Moreover, the charities assess their spending on fundraising by comparing with the overall spending of charity and divide the fundraising expenses by the total of functional expenses. Due to charities spend money to raise money, financially effective charities must in part be efficient fundraisers, spending less to raise more. Therefore, they assign the fundraising expenses by the total contributions it receives. After measuring the fundraising efficiency, they convert the results to a numerical score ranging from zero to ten. From these performance metrics, they show the potential donors how well that charity is discovered to seek for long-term and systematic change (Charity Navigator, 2016).

In conclusion, performance analysis is a process of assessing the financial statement of company to get its financial status and achieve the decision making. It can be analysed by two methods - comparative analysis and ratios analysis. Besides that, it is executed for commercial entities and it’s inappropriate and not relevant for charities.

Reflective Essay

I’ve been a direct entry student at University of Hertfordshire for 2 semesters, and over the accounting and finance in the voluntary sector, I have learned about what is the voluntary sector, some of the differences between the charities and commercial entities and how to evaluate the charity accounts. Other than these, I also have increased the knowledge of the responsibilities of trustees, the funds of charity and more.

Charity is an organisation that provides help and raise money for those who need. It committed to deal with the fundamental problems, such as reducing the global poverty and more. Therefore, Charities and fund managers are approaching Responsible Investment from the perspective of social, environmental, ethical or governance risk management may wish to pay specific attention to issues (Charitysri.org, 2016). Fundraising is a key source of income for the charities, therefore it is important for the commission to help the charities fundraise legally (Charities and