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If you don't have a degree in accountancy, reading your housing association's annual report is a daunting prospect. Yet it holds vital information on subjects such as the health of your association's pension fund and its investments. The good news is that, usually, you don't need to read the whole thing. Annual reports are mostly made up of three main sections, each covering particular topics that you should make a beeline for.

Reports from senior managers
The first section contains reports from the senior managers, such as the chairman and chief executive. These may give some useful pointers about where your association is heading and the highlights of the year, but they are not without bias and will probably focus on the positive. The reports may also include a review of the year for each association within a group structure including, for example, money spent on modernisation, which can be useful.

Financial statements
This is the nuts and bolts of the report. Unfortunately, it's also the most intimidating section. It usually consists of the profit and loss account, the balance sheet, a cashflow statement and notes.

The profit and loss account shows the association's income and expenditure over the year, while the balance sheet is a snapshot of the association's financial position on the last day of its financial year. It shows what the association owns and what it owes. The account and the balance sheet should be used together as each shows different aspects of the organisation's financial performance.

Apart from showing how much income the association had, the profit and loss account also shows what it is spending its money on. Often, it is not very detailed, but there should be more information in the notes. You can use the profit and loss account to find out how the association is performing compared to the previous year or compared to similar associations.

If you calculate the operating surplus figure from the bottom of the account as a percentage of the total income at the top, the result is the "profit margin" made on the income. If there is a large difference from year to year, you would naturally want to know why. The answer might be obvious from the chairman's report or the profit and loss account. There might have been an expensive maintenance programme, for example. If the reason is not clear, you could ask the finance director.

The cashflow statement, like the profit and loss account, covers the whole year. It is like a bank statement, showing cash coming in and cash going out. It is a good way of seeing what resources the association had during the year and how it used them. You could find how much grant it received, how much it spent on buying properties, or how much it made from shared-ownership sales. Again, the amount of detail included differs from statement to statement.

If the auditor believes the accounts provide a reliable picture of the association鈥檚 financial health, it will say they are 鈥榯rue and fair鈥�

Remember also that the cashflow statement may contain sums that do not relate to the year covered by the report. If a government grant intended for the previous year was received late, it would feature in the cashflow statement for the year it was received. But it would have already been included in the previous year's profit and loss account.

The notes to the accounts will tell you what rules were used to draw up the accounts. For example, the accountant will have assumed that the homes owned by the association will depreciate in value over a set length of time 鈥� 60 years, say. The notes will also tell you how money from sales is divided across the accounts.

The auditor's report
The auditor's statement tells you whether the accounts are trustworthy. Auditors are independent analysts who check the accounts.

If they believe the accounts provide a reliable picture of the association's financial health, they will say they are "true and fair" in their statement. If they have doubts, because there was information missing or because the accounts have not been drawn up in line with accounting rules required by law, they will say something like "in my opinion, the accounts give a true and fair view except that 鈥�"

If there is a question mark over the association's financial future, the auditors may say they have been unable to form an opinion; in serious cases, the auditors could say the accounts do not give a true and fair view.

Pensions
Under new accounting rules, associations that run their own pension scheme will be obliged to include its performance in their accounts. However, it will not be listed if the association is a member of the Pensions Trust's Social Housing Pension Scheme or runs its fund through a trust separate to the association. The notes will also include lots of information on pension schemes.