Treasury reporting to the board - it could be worth the 'house'
Boards frequently approve financial risk management policies - which are very important in that they set the risk appetite of organisations. Every organisation should have such a policy - even if they do not have a treasury function according to Stephen Cheesewright, Director of Financial Risk Management for KPMG.
Boards frequently approve financial risk management policies - which are very important in that they set the risk appetite of organisations. Every organisation should have such a policy - even if they do not have a treasury function.
To ensure these policies are being complied with, the board should request information on how the organisation is managing each financial risk and whether the policy is being followed. This is usually done through treasury reporting. This is a minimum requirement.
More importantly, the board needs to ensure it is comfortable with the organisations financial risk position - because ultimately directors may be personally liable for any mishaps.
Board members will become personally liable for the debts of the organisation if it trades whilst insolvent.
Yet nearly half of boards do not receive information on projected cash flows. Many boards receive information on past cash flow performance but this is like driving a car by looking in the rear vision mirror.
Of course there are other financial risks. For example, there are currency and interest rate risks. It would be interesting to know how many board members have some feeling for the sensitivity of the organisation to rising interest rates in terms of profitability and compliance with covenants.
These issues should be covered in the treasury report along with topics such as liquidity, interest rate, currency and commodity risks of the organisation.
CPA Australia provides a number of tool relevant to these issue including a proforma treasury policy from the Finance & Treasury section of the website.
Please note: The information contained is of a general nature and is not intended to address the circumstances of any particular individual or entity. The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG.
