Why do boards hold a vote to “accept the financial statements” at their AGM?

I was talking to one of my favourite clients the other day and he raised this question. It’s always puzzled me, too, but until he pointed it out I never thought to try and explain it.

So I went back to my old friend, General Henry M. Robert. Roberts Rules dictates that the “auditor’s report” – not the audited financial statements, be submitted for a vote of approval. This clarification helps a little but it’s still not clear why the vote is needed.

In section 54 of the original edition he describes adoption or acceptance of reports in general and here’s the relevant content:

”…if the report contains only a statement of fact or opinion for the information of the assembly, the reporting member makes no motion for its disposal, as there is no necessity for action on the report. But if any action is taken, the proper motion…is to “accept the report” which has the effect of endorsing the statement and making the assembly assume responsibility for it.”. <italics mine>

A rough translation might be “…which has the effect of the directors and the CEO covering their respective asses”. If the members vote to accept the auditor’s report then they are voting to accept the auditor’s conclusions with the clear implication that they have read the financials, read the report and agree with its conclusions.

For those organizations that do not have an audit, a report from the audit of finance committee can be substituted for the auditors report.

Happy Bean Counting.

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Filed under AGM, Association, Association Management, Leadership

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