Why Questioning Financial Statements Matters

In the flood of LinkedIn posts about how to read financial statements, I find one missing ingredient: critical questioning.

Diagrams and “infopictures” might make financial statements look neat and digestible, but they often oversimplify what’s really going on in a business. Boards and committee members shouldn’t be aiming to memorise balance sheet layouts or agree on ratio colours — they should be aiming to notice what doesn’t look right, and ask why.

Financial oversight isn’t about comprehension alone. It’s about curiosity, judgment and early detection of issues that could escalate into real problems.

1. Unaudited Financial Statements — What to Ask

When looking at unaudited financials, here are the key questions that add real governance value:

Profit & Loss

• Has total income exceeded the GST registration threshold, and if so, is the organisation correctly registered?

• Have salaries and wages surpassed payroll tax thresholds, triggering statutory obligations?

• Are superannuation and PAYG withholdings being paid on time, every time?

• Are fringe benefits accounted for correctly — or overlooked?

Balance Sheet

• Are bank accounts reconciled and reflected in the reported cash position?

• What portion of accounts receivable or payable is overdue (e.g. over 90 days)?

• Are employee entitlements scheduled appropriately and reconciling to the reported balances?

As Einstein said:

“The important thing is not to stop questioning. Curiosity has its own reason for existing.”

Misstatements, omissions, or unchallenged assumptions in unaudited statements often hide bigger risks. If the numbers aren’t scrutinised with thoughtful questions, they can’t be fully understood.

2. Why This Matters: ASIC’s Insolvency Framework for Directors

ASIC’s guidance on insolvency for directors emphasises that company officers have a legal duty to stay informed and vigilant about the financial position of a business.

According to ASIC:

• A company is insolvent if it cannot pay its debts when they fall due.

• Directors must take reasonable steps to ensure the company’s financial position is understood at all times — not just at reporting dates.

• Failing to prevent a company from trading while insolvent can lead to civil penalties, personal liability, and even criminal consequences. 

This duty isn’t hypothetical — it reflects the principle that boards and directors must actively monitor solvency, investigate financial difficulties, and act promptly if warning signs emerge. 

Good financial statements — including well-questioned unaudited ones — are early warning systems. They allow boards to recognise shifts in earnings, cash flow and liabilities before a company gets into trouble.

Please note: Under Part 10 (Administration and winding up) of the Associations Incorporation Act 1981 (Qld), an incorporated association is treated in the same manner as a company, and management committee members are subject to the same duties and liabilities as company directors, including obligations relating to solvency and insolvent trading, by reference to the Corporations Act 2001.

3. What the ATO’s Random Enquiry Program Reveals

The Australian Taxation Office uses its Small Business Random Enquiry Program to assess tax and compliance risks across a broad sample of small businesses. The insights from this program are telling:

• The ATO examines a random selection of small business tax returns to estimate compliance gaps and identify areas where financial and tax obligations are not being met.

• These enquiries aren’t triggered by suspicion alone — they’re random — and they highlight how often fundamental compliance issues occur even when a business appears to be operating normally. 

For directors and committees, this means that what you see on the face of financial statements may not fully reflect compliance status with tax obligations. Asking questions isn’t optional — it’s essential for sound governance.

Please note: Under the Taxation Administration Act 1953 (Cth), management committee members of an incorporated association are treated in the same way as company directors for tax administration purposes, including personal responsibility for PAYG withholding, superannuation guarantee, GST obligations and reporting compliance.

4. Boards Need Questions, Not Just Pictures

Infographics are attractive, but they:

• Can create false confidence

• Often hides nuance and context

• This implies that understanding comes from memorising layouts rather than interpreting signals.

Real understanding comes from challenge, not appearance. It comes from asking:

• Why does cash flow differ from the last period?

• What assumptions underlie this forecast?

• Are there pending tax or statutory obligations that haven’t been recognised?

• What risks are hidden in slow-paying customers or misclassified expenses?

These are the types of questions that help boards fulfil their oversight role with rigour and proactivity.

Final Thought

Financial statements — whether audited, reviewed or unaudited — are more than documents to be read. They are instruments to be questioned.

Curiosity doesn’t just refine understanding. It protects organisations and their stakeholders. Boards that question early and deeply can detect risks sooner, correct course faster, and avoid escalation into regulatory or solvency issues.

A balance sheet, without question, is just a snapshot.

A board with questions has a future-focused strategy.