1. Interpreting and using financial information
Gert van der Linde, World Bank
Uganda, Kampala
May 21, 2004

2. Interpreting and using financial information
Determining information needs
Sources of information
Importance of standards
Getting the information
Using the information
Closure

3. 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

4. Accountability Framework
Organization:
Departments
Branches
Cost Centers
How much?
Quality?
When?
Cost?
Outcomes
Outputs
Programs =
Budget
Economy
Efficiency
Effectiveness
Inputs:
Salaries
Supplies
Capital exp, etc.
“REAL” Performance Agreements
Accountable for what is controlled

5. 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

6. RSA – Old “input” focus, no trends

7. RSA progress: Budget Information

8. RSA progress: Budget Information

9. RSA progress: Budget Information

10. National Treasury Annual Report: Performance

11. Year-end: 31 March 2002, Audited by 31 July 2002!
Annual Report
Year-end: 31 March 2002, Audited by 31 July 2002!

12. National Treasury:
Income Statement

13. National Treasury:
Balance Sheet

14. 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

15. 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 Minister’s 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

16. 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

17. 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

18. 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

19. 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.

20. Other information Audit opinion
Non-financial information – e.g. service delivery trends
Strategic direction

21. 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?