Late last year, Chartered Accountants Australia and New Zealand (CA ANZ) and the Association of Chartered Certified Accountants (ACCA) collaborated to co-author a guide detailing the roles and responsibilities that directors have when it comes to financial reporting.
Why did CA ANZ and the ACCA decide to undertake this joint endeavour? Well, in their words, they wanted to “specifically prepare” the 22-page publication for their members; hopeful they’d then relay it on “to directors who do not have a financial background to assist them in understanding their responsibilities.”
With the target audience in mind, the guide, entitled Directors’ Responsibilities for Financial Reporting, is easily digestible; written in plain English, aptly used visual aids, and cleverly segmented into five useful questions, those being:
First dissecting the ‘who’ element, CA ANZ and the ACCA inform the reader of the various participants that contribute to any given organisation’s financial reporting process.
In doing so, the role of directors (i.e., “being responsible for overseeing the financial reporting processes undertaken by management”) is defined with greater clarity, so that the reader can better conceptualise how it relates to the respective roles of management, external auditors, stakeholders, and regulators, for example.
Shifting focus to the ‘why’ question, Directors’ Responsibilities for Financial Reporting outline how directors are (almost) universally legally bound to adhere to their responsibilities in relation to financial reporting.
The guide highlights “the duty of care directors have to the organisation it is governing,” is borne out of the fact that an entity is not considered a natural person. And so, such entities require people (i.e., directors) to be held accountable for the decisions of said entity.
Thirdly, addressing what responsibilities directors have when it comes to financial reporting, the guide makes note of the oft-unacknowledged fact that “directors do not need to be accounting experts.”
In this, the largest segment of the publication, directors are informed of what exactly is (and is not) expected of them when it comes to the preparation of financial statements and annual reports.
Proceeding this is an explanation of how directors discharge their financial reporting responsibilities. Here, CA ANZ and the ACCA point out that some jurisdictions actually have “the approach directors are required to take in discharging their duties” written into their respective legislation.
The extent to which a director complies with their financial reporting responsibilities is often determined by how well they discharge these responsibilities, according to the publication, which then asserts that “a good director will challenge the information and ideas presented by management and other parties and approach their role with an open mind.”
Finally, the question of ‘when’ is explored. However, this is a bit of a misnomer, for the authors recommend that the directors keep a watchful eye over the financial position of their particular organisation, “rather than just considering it at the end of a reporting period.”
The whole guide can be accessed here (.pdf). Aside from the aforementioned information, you’ll be able to view a resourceful set of appendices. Notably, Appendix One covers how extant legislature in each of Australia, Hong Kong, Malaysia, New Zealand, Singapore, and the United Kingdom outlines the directors’ responsibility re: financial reporting.