As a company director, you are responsible for the financial reporting of that business.
You're responsible for the financial reporting, regardless of whether you’re the finance director or not!!!
Definitions
Director's duty to account
The Companies Act 2006 puts the following legal responsibilities on you:
1- Act within the powers
2- To promote the success of the company for all stakeholders
3- To exercise independent judgment
4- To exercise reasonable care, skill, and diligence
5- To avoid conflicts of interest
6- Not to accept benefits from third parties
7- To declare interest in proposed transaction or arrangement
Additional responsibilities
1-Registering for business tax
2- Filing an annual Confirmation Statement
3- Filing annual accounts with Companies House
4- Filing Company Tax Returns and annual accounts with HMRC
5- Reporting company changes
To remember :
Why do we have accounting rules ?
the goal is to prevent misleading reporting, ensure comparability over time and across businesses, and make sure similar transactions are treated consistently.
Definitions
window-dressing in accounting
to present their financial statements in the most favourable light possible, especially around reporting dates by using legal but selective accounting choices or timing decisions to make the business look stronger than it really is.
To remember :
Who sets the accounting rules?
As the world has become more globalised, the desire to invest and trade across boarders has increased. The International Accounting Standard Board (IASB), based in London, sets a set of accounting rules (adopted by 144 countries). The accounting rules, are called International Accounting Standards (IAS) or International Financial Reporting Standards (IFRSs). They set the rules on what information
should be disclosed, how information should be presented, how assets should be valued and how profits should be measured.
Outside of the IASB, many exchanges( London Stock Exchange) set their own regulations.
Auditor's role
independent and qualified person(s) who review the financial statements on behalf of the
shareholders and offer their opinion on whether the financial statements offers ‘a true and fair’ view
a company is exempt from auditing when it does not exceed two of the following: Annual turnover of no more than £10.2 million, assets worth no more than £5.1 million or 50 or fewer employees on average
Given the vast number of transactions, audits rely on sampling methods to make judgements. Auditors are appointed by the shareholders to review the financial statements provided by the directors.
Definitions
audit committee
Operating committee of a listed business. The audit committee’s tasks include reviewing the company’s internal controls and reviewing the company’s governance and risk management systems.
Auditor’s Fee (this creates a potential conflict of interest on the subject of ‘independence’ because they can be lenient if they receive a huge amount)
Definitions
management commentry
A narrative report that provides users with historical explanations of the amounts presented in the financial
statements, ( financial position, financial performance and cash flows.)
strategic report is a separately statement, which describes how the directors have discharged their duty under section 172 of the Companies Act 2006 to promote the successes of the company for the benefit of its members.
Directors of a company are required to prepare a directors’ report
at the end of each financial year. (The names of each director who served during the reporting year, A summary of the company’s trading activities A summary of future prospects...)
Definitions
statements of changes in equity
presents a summary of the changes in shareholders’ equity
accounts over the reporting period ( Net profit or loss, Dividend payments, The issuing of shares, The re-purchasing of shares, Effects of changes in fair value for certain assets)
statement of comprehensive income
to show all of the additional revenues, gains, expenses, and losses that caused stockholders' equity to change during the accounting period, but were not shown by the income statement. ( Unrealised gains/losses on available-for-sale investments, Foreign currency translation adjustments...)
Creative accounting is intentionally misrepresenting the financial statements with the intention of misleading the users.
To remember :
Misstating revenues
form of creative accounting : seeks to include deferred revenue ( prepayment) intended for the next financial year in current financial statement; seeks to record artificially sales from essentially ‘fake customers’
To remember :
Massaging expenses
form of creative accounting : a company seeks to adopt accounting policies which move
expenses into different periods (depreciation, amortisation of intangible assets, costing inventories and use of provisions)
To remember :
concealing bad news
This form of creative accounting :company directors seek conceal losses or liabilities. One way of doing this is to create a legal entity known as a special purpose entities (SPE)s, which hides the losses or liabilities,
To remember :
misstating assets
form of creative accounting: stating asset values
which are higher than the fair values, recording assets that are not owed by the business or simply do not exist.
To remember :
Inadequate disclose
form of creative accounting: company directors seeks to conceal information which should be disclosed either directly within the financial statement / annal report.