Financial Planning and entrepreneurship in ART Essay
Dulwich Picture Gallery is a charitable registered organization based in gallery Road London SE21 7AD with registration 1040942. Its core activities include provision of education services and collection of gallery amounts. The report will focus on the financial health of the fund, its impact in to the society. 2. 0 DULWICH FINANCIAL REPORT
The English law requires the trustees of charities to prepare financial statements each year and the financial statements prepared should give a true and fair view of the state of affairs of the charity at the end of each year and the financial statement should show clearly the incoming resources and the resources expended during that period in question. From the auditors report provided by this company, the trustees statements has stated that, it is their duty to prepare financial statements which gives a true and fair view of the trustees or the charities statement of affair.
In the preparation of the statement, they have also indicated that they have selected suitable accounting policies and they are applying them consistently. They have also indicated that judgments and estimates in the financial statements are reasonable and prudent. At the end of the financial statements, they have attached notes to the
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Lastly, the trustee have stated that the financial statement have been prepared on the basis of going concern which is the case. From the description above, the trustee of the gallery have a major responsibility of ensuring that the financial statement prepared are reasonable, accurate and consistent from time to time. This is possible when they ensure proper accounting records which dislose with reasonable accuracies the financial position of the company are kept. The trustees are responsible for proper storage of all accountable documents and assets of the company.
They are required to ensure that reasonable steps are taken and detect fraud, irregularities or misplacement of company’s asset or accountable documents. The auditor in his report in paragraph 6, he has stated, “we read the trustees report and considered the implications for our reports if we become ware of any apparent misstatements within it. ” The statements show that the auditors rely on the report from the trustees. This makes the trustees the most important group in the running of affairs of the charity.
The responsibility of the auditor is just to express an opinion about the financial statements as relates to legal and regulatory requirements and conformity with international financial reporting and auditing standards as recognized in the United Kingdom and Ireland. Like a trading company they act as the directors of the charity. 2. 1 THE USEFULNESS OF FINANCIAL STATEMENTS. For accounting information to be useful for financial judgments decisions, it must have some characteristics. They include (i) Relevancy; this is the capacity of the information generated to make a difference in decision-making.
(ii) Timeliness; information should be relevant and should be produced during relevant time containing information in market prices prevailing at that time, if for example its prepared after lets say 5 years it would be irrelevant. (iii) Reliability; the information prepared should be reliable for decision making i. e. they are accurately measured. From the financial statements prepared by the company, they contain al the above requirements for the information to have relevancy but the challenge contains some sources of income which u cannot estimate its future with certainty.
These include donations, grants and sponsorship. The charity ha received grants, donations and sponsorships of unrestricted funds of ? 153,000 restricted funds of ? 788,000 endowment fund of ? 368,000 in the year 2007 which total to ? 1309,000 while in year 2006, it was ? 1,192,000. Although there is a decrease in this form of incoming resources, it is certainty as income is not known with a reasonable degree. This form of income was received from various people for various reasons or activities some of which are not ongoing. The donors for these activities include American friend of Dulwich ?
246,000 Dr. Mortimer & Theresa Sackler Foundation ? 195,000, Friends of Dulwich Picture Gallery ? 182,000Estate of Edith Callam ? 130,000 Fortis ? 70,000 , 1811 club Defensans circle and other patrons ? 62,000, In memory of Bill and Anita Greenoff ? 40,000, The City Bridge Trust ? 40,000, London Borough of Southwark ? 28,000, Bank of America ? 25,000, Linbury trust ? 21,000, Concheme charitable trust ? 17,000, Estate of Seumas Finn ? 35,000, Lillian jean Kaplan foundation ? 13,000, Dulwich Village Preservation Society ? 10,000, Other donations for education ?
61,000, Other donations for Exhibitions ? 36,000, Other donations for Collections ? 44,000, Donations by visitors to the Gallery including gift aid ? 2,000, Other sponsorship and donations ? 30,000. All this donations are based on decisions of the donor in question and the gallery can not estimate the amount. From the information provided above about donations, grants and sponsorships, it shows it is from a wide variety of contributors who have no contractual commitment to continue donating to the charity. It is very difficult to rely on such kind of information in decision making about expenditure.
Such income is recognized as to when t is received it can not be accrued before actual contributions are made. If the sponsor, grantor or donor indicates the purpose, the period he wants the money to be used, then it will be recognized at that period of use and it becomes very difficult to decide whish information should be used about the income for decision making. Therefore, the charity trustee cannot with a degree of confidence make a decision relating to grant, donations and sponsorship because of their nature. Other sources of incoming resources for the charity can be estimated with certainty and prudence.
Income from shop sales, catering and gallery hire can be estimated and they are seen to join from time to time. In the year 2007 shop sales were ? 256,000 catering and gallery hire were ? 60,000, while in the year 2006 they were ? 210,000 and ? 67,000 for shop sales and catering respectively. This form of income can be estimated because it relates to activities which are in control by the management. They have also income from charitable activities which is uncertain since it is not easier to estimate the income from education, exhibitions sales, admission charges and other collections.
However, if the charity management manages the activities properly, they will be bale to estimate the income from this system. Most exhibitions depend mostly on the marketing ability of the firm in question. The same case relates to expenditure of this charity. Expenditure for designated or restricted income is to be used for designated expenses. Such kind of expenditure at times becomes uncertain since you cannot estimate how much income you are going to have at the end of the year since most of the income is from individuals whom you cannot control.
In general, there is great improvement in the financial performance of the fund since the income within is increasing. In order for the financial statements of this charity to have reliable and useful information, some information is necessary. The information that is required includes the statements of cash flows. The statements of cash flows is a statement which reports cash receipts and payments in the period of their occurrence classified as operating, investing and financing activities. It provides with information about non cash items that are in the income and expenditure account.
It has to explain the changes in the balance sheet and the actual free cash flow in the organization. For the charity, this will include; donations received, sale of property, purchase of property and any other donations given or charities issued. The main key performance measure in this statement is cash fro operations which is the cash effect of all transactions that are involved in the day to day running of the charity. It is reported directly or indirectly in reconciling the financial statements. The other information required is the foot note in the accounts.
The foot notes provide information that argument the financial statements. They are; integral part of the financial statements and it explains actities such as accounting methods used, assumptions made, estimates used to develop the information reported in the financial statements. The footnotes assist the users to improve assessments of the amounts, timing and uncertainty of the estimates reported in the financial statements. Footnotes provide additional disclosures which assist in decision making. In this case of Dulwich, we need a foot note for contingencies and pledges made by donors.
This will assist in decision making. We should also have prospective information that discusses the significant effects of currently known trends, events and uncertainties among charities. It should also provide us with information on how the activities of the fund are used. They should provide policies on the charities they are involved in to persist in decision making. The information about the auditor is also necessary. 2. 2 CONSISTENCY IN ACCOCUNTING INFORMATION. The charity has kept their accounts in a consistent manner as required by accounting and financial generally accepted statements of UK and Ireland.
I will begin with the definition of consistency. Consistency and comparability are also key characteristics of accounting information from the analyst perspective. Consistency refers to use of the same accounting principles over time. A broader term, comparability, refers to comparisons among companies. Consistency is affected by new accounting standards and voluntary changes in accounting principles and estimates. Accounting changes hinder the comparison of operating results between periods when the accounting principles used to measure those results differ.
As the transition provisions of new accounting standards vary, it is frequently difficult to obtain a consistent time series of earnings properly adjusted for such changes. For voluntary changes the effect of the change is generally disclosed only for the year of the change. Comparability is a pervasive problem in financial analysis. Companies are free to choose among different accounting methods and estimates in variety of areas, making comparisons of different enterprises difficult or impossible. Although the FASB has narrowed these differences somewhat in recent years, new types of transactions create new sources of non-comparability.
Even when accounting difference does not exist, however, comparability may be missing because of real differences between the firms. They have given us financial statements with accounting policies that are consistent from here to here. In their policies, they have not indicated any point where they have changed from time to time. These accountning policies include: (a) The accounts have been prepared under the historical cost invention as modified by the revaluation of investments and in accordance with applicable accounting standards.
The accounts comply with the recommendations of the statements of recommended practice Accounting and reporting by charities (the SORP) revised in 2005. The charity fully adopted financial standard 17 retirement benefits (FRS17) from 1 April; 2005. (b) The accounts incorporate the results of the wholly owned trading company, Dulwich Picture Gallery Enterprises limited (DPGE). In the statement of financial activities the results of DPGE are consolidated with those of the operating fund of the gallery on a line by line basis.
Separate balance sheets as at 31 March 2007 are presented for the group as a whole and for the gallery. (c) Donations and investments income are shown in the accounts when the conditions for receipt have been met. Legacy income is shown when thee is certainty of receipt and the amount due to be ascertained with reasonable accuracy. (d) Cost of generating funds include investment management fees and the staff and other costs associated with fundraising as well as the costs include all expenditure on the education department, the temporary exhibition program, the collection and building and publicity.
(e) Governance costs include all expenditure on constitutional and statutory requirements and costs associated with board meetings and of staff liaising with board members on strategic issues. (f) Support costs, which include administration staff costs and general office expenses, have been apportioned to the charities activities. (g) Staffs in post prior to February 2002 were offered membership of a defined benefit pension scheme. Contributions to the scheme are charged in the statement of financial activities so as to spread the cost of pensions over the employees’ working lives.
The investments comprising the funds of the plan are administered by pensions over the employees’ working lives. The investments comprising the funds of the plan are administered by pension fund trustees and are independent of the gallery’s assets. Further, details are set out in note 18. Other staffs are offered membership of a defined contribution scheme. Employer contributions to this scheme are charged in the statement of financial activities as incurred. Further details are set out in note 19. (h) The value of the collection of pictures and historic furniture held ate the gallery is not reflected in the accounts.
These are heritage assets whose historic value is not readily ascertainable and the trustees consider that the cost of obtaining a valuation would outweigh the benefit to users of the accounts. The cost of additions to the collection is written off as incurred in the statement of financial activities, as such additions are infrequent and their cost is immaterial in relation to the collection as a whole. The financial policies listed above indicate that the firm maintains policies that are followed from here to here and they form the basis of financial statements preparations.
They have indicated how assets that are fixed assets are recorded from here to here. This shows consistent in liabilities of the firm. They have also indicated that their accounts are kept on the basis of accrual. Accrual basis is where accounting is done not in receipts and payments but on actual costs incurred at a specific period for a specific incoming resource, for example if 1 indicates that his money will finance activities for the following period, it will expended that specific period and for the specific purpose. It will be recorded as an income for the period it will be expended.