3 Directors' Responsibilities in Financial Reporting

Companies are required by law to prepare annual financial reports that are presented to the shareholders at the end of the financial year. The financial report is accompanied by the directors’ report on the financial standing of the organization. A company may only be exempted from preparing the director’s report along with the financial report if at least 5 per cent of the shareholders direct the directors not to prepare the reports or the regulator allows them not to prepare the reports. The preparation of the reports lies squarely in the hands of the board of directors. They are obligated to prepare financial statements for the year that ended, notes to the financial statements and their declaration about the given statements. Other directors' responsibilities that should be fulfilled in line with financial reporting include:

1. Ensuring that the financial reports are audited

The law requires the directors to obtain an audit of their financial accounts from an independent auditor and present the audited accounts to the shareholders at the annual general meeting.

2. Lodging the annual report

In addition to presenting the annual financial report to the shareholders, the directors are required by law to lodge the financial reports with the regulator. The report should include the auditor’s report, financial statements and the directors’ declaration and notes regarding the financial statement.

3. Proper reporting of the financial reports to members

Members are entitled to have a full disclosure of the financial standing of the organization at the end of each financial year. Directors are obligated to present a similar report to that which was presented to the regulator to its members.

What if directors do not comply with the requirement?

The failure to comply with the law on financial reporting may give rise to a liability or constitute an offence. The law provides that such financial records should be kept for at least seven years. If they are not available for the period, the directors may face criminal liability for neglecting their duties to furnish the members and the regulator with a report on the organization’s financial standing. It is advisable that the board of directors seeks professional advice if unsure of what financial reports to create and on ways to ensure the accuracy of the reports. A professional accountant may also help in maintaining proper financial records throughout the year to ensure accurate reporting at the end of the financial year.

WHAT DO I DO NOW?

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* This blog is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.