While the statutory accounts provide the figures, this narrative section gives trustees the opportunity to explain what they mean – particularly in terms of the charity’s financial health, key risks, and future plans. It also shows that trustees are meeting their fiduciary duties and acting as effective stewards of the charity’s funds.

In line with the Charities SORP (FRS 102) and Charity Commission guidance (CC15d), the financial review should be accessible to non-accountants, while remaining accurate and complete. Where appropriate, consider using graphs, pie charts, or simple infographics to help convey financial messages clearly and make your review more engaging.

Overview of the Year’s Finances

This section should summarise the charity’s financial position and performance over the year. A well-written review will help readers understand where the money came from, how it was used, and whether the charity is in a healthy position.

Good Practice:

• Explain any major changes in income or expenditure, especially where restricted funds or large one-off grants are involved.
• Highlight any surpluses or deficits, and put them in context.
• Comment on significant assets, liabilities, or changes in funding strategy.
• Discuss cashflow and budgeting practices, including how the charity has managed working capital and planned for future financial needs.

Avoid:

• Simply repeating figures from the accounts with no added context or explanation.
• Ignoring major variances, especially if they may prompt questions from stakeholders.

Principal Risks and Uncertainties

The charities SORP requires charities to disclose the main risks they face and how these are being managed. Trustees should use this section to demonstrate responsible oversight and forward planning.

• Focus on strategic risks such as funding sustainability, regulatory change, or reliance on key personnel.
• Look at both the uncertainty of income, as well as the ability to reduce costs quickly if you need to weather a storm.
• Describe the systems in place to mitigate financial risks – for example, scenario planning, diversification of income, or strengthened governance.

Reserves Policy

Charities must set out their reserves policy, including:

• The level of reserves held.
• Why this level is considered appropriate.
• How the reserves will be used or maintained.

Trustees should provide a clear definition of what they mean by “reserves” – i.e. the free, unrestricted funds readily available for use and clearly explain strategic reasons for designating funds for specific future purposes.

This is an area where many charities fall short, often defaulting to generic wording that doesn’t reflect their actual position or using blanket calculations like “6-months operating costs” without any reference to the risks and operational cycles of the charities activities. A clear and tailored reserves policy signals strong financial governance and helps funders assess the charity’s resilience.

If you’re unsure whether your current reserves policy is fit for purpose, we’ve created a simple guide to setting your charity’s reserves policy – available on request via our contact page. And watch this space: we’ll be covering this topic in more detail in future blogs.

Final Thoughts

A transparent financial review helps trustees demonstrate accountability and gives confidence to funders, regulators, and supporters. By going beyond the figures and telling the financial story of the year – with clarity, context, and a few visuals – you can show that your charity is well run, forward-looking, and financially sound.