CAT / FIA FFA Syllabus A. The Context And Purpose Of Financial Reporting - Duties and responsibilities of directors in preparation of financial statements - Notes ^{2 / 2}

Board of Directors

The most prominent group of actors in corporate governance are the company’s directors. They can be either executive or non-executive directors (NEDs).

The UK Companies Act sets out seven statutory duties of directors. Directors should

Act within their powers
Promote the success of the company
Exercise independent judgement
Exercise reasonable skill, care and diligence
Avoid conflicts of interest
Not accept benefits from third parties
Declare an interest in a proposed transaction or arrangement.

Directors' considerations

The consequences of decisions in the long term
The interests of their employees
The need to develop good relationships with customers and suppliers
The impact of the company on the local community and the environment
The desirability of maintaining high standards of business conduct and good reputation
The need to act fairly between all members of the company

Directors’ Responsibility for the Financial Statements

The directors are responsible for preparing the annual financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year and such financial statements must give a true and fair view. Hence, the directors are required to:

select suitable accounting policies and then apply them consistently;
make judgments and estimates that are reasonable and prudent; and;
state whether they have been prepared in accordance with IFRSs.

Directors are responsible for the internal controls necessary to enable the preparation of financial statements that are free from material misstatement, whether due to error or fraud. They are also responsible for the prevention and detection of fraud.

Financial statements of companies are usually audited. An audit is an independent examination of the accounts to ensure that they comply with legal requirements and accounting standards. The findings of the audit are reported to the shareholders.