“Directors of every company (whether subject to audit or not) are responsible for ensuring that the company maintains proper accounting records and for preparing financial statements, which give a true and fair view in accordance with Generally Accepted Accounting Practice in Ireland including the accounting standards issued by the Accounting Standards Board and the Companies Acts, 1963 to 2006”.

Now more than ever the information being presented in the financial statements of companies is being subjected to intense scrutiny by various bodies including banks, investors and the public at large in what can only be described as unstable and uncertain economic conditions.

There has always been a misconception that the information and disclosures required in an unaudited set of financial statements need not be quite as exhaustive or comprehensive as that which would be expected for an audited set of financial statements. While this is true to a certain degree an un-audited set of accounts still need to be prepared in accordance with Generally Accepted Accounting Practice in Ireland including the accounting standards issued by the Accounting Standards Board and the Companies Acts, 1963 to 2006 which should invariably result in a significant resemblance in the disclosures made in both sets of financial statements.
 
Companies who adopt the FRSSEs (Financial Reporting Standard for Smaller Entities) as their basis of accounting have obvious advantages in terms of the degree of disclosures required but again there is limited availability of exemption from making a number of key disclosures in a set of financial statements as outlined below.

In light of the current economic climate we are facing presently, a number of particular statutory and technical disclosures have become subject to particular scrutiny by both the accounting institutes and representative/regulatory bodies. 

While there are a number of disclosure issues that have been subject to commentary in recent months the discussions below deal specifically with common Financial Reporting disclosure issues, which arise in the Directors Report. Part B of this publication will deal with disclosure issues arising in the Auditors/Accountants Report while Part C will deal with disclosure issues arising in the Notes to the financial statements.

Risks & Uncertainties

Section 13 of the Companies (Amendment) Act, 1986 (amended for Statutory Instrument No 116 of 2005) requires the directors of a company to identify the risks and uncertainties it’s company faces and to disclose these in the Directors Report accompanying the company’s financial statements.

These disclosures have very much been overlooked by many companies in recent years with those complying making at best, brief generic statements without identifying real tangible risks or uncertainties. There is a strong case for suggesting that in our current economic conditions many companies face real and challenging risks and uncertainties such as

Concerns over availability of credit, in particular if there are facilities due for renewal soon after the issuance of the financial statements;
Uncertainties regarding the valuation of tangible and intangible fixed assets
Uncertainties regarding the viability of the business due to the highly competitive industry it is involved in etc

In a recent publication by IAASA it was identified that the standard of compliance with the requirements associated with disclosure of principal risks and uncertainties was very much varied.

On that basis and having regard to current economic circumstances, one of the aspects that is likely to be focused on during the course of reviews of issuers’ financial reports in the coming year will be the quality of risk and uncertainty disclosures. Specifically, IAASA is likely to focus on whether the disclosures provided by preparers are meaningful and issuer-specific as opposed to being boiler plate in nature.

Events after the Balance Sheet date & Future Developments

Section 13 (b) & (c) of the Companies (Amendment) Act, 1986 require the disclosure of any important events since the period end and details on any future developments the Directors intend on undertaking within the coming years.

As with Risks and Uncertainties the information disclosed has tended to be vague or totally omitted in a number of cases in recent times.

The future rather than the past of each company is becoming increasingly more important thus an emphasis in priority should be given to this section of the Directors Report in terms of the detail and the information being presented to the reader of the Financial statements.

Interests of Director’s & Secretary

Following the discovery of the removal and reduction at year-end of a director’s loan in Anglo Irish Bank’s financial statements there has been widespread commentary and discussion regarding the disclosure of Directors loans, interests and other related party transactions. While we will discuss the disclosure requirements for Directors loans and related party transactions under FRS 8 in Part C of this publication, the issue of Director and Secretary Interest’s will be dealt below.

Section 63 of the Companies Act 1990 requires disclosure of the interests in shares or debentures at the beginning of the year or date of appointment in cases where the Director/Secretary is appointed during the year and the end of the year held by each Director of the Company and for the Secretary. Section 63 requires disclosure that no such interests were held if that is the case for a particular company.

Confusion often arises with regard to where in the Financial Statements such disclosures should be made. There are two options; as a paragraph in the Directors Report or alternatively in the Notes to the Financial statements.

It should be noted however that disclosure of such interests is also required in an abridged set of accounts so for example In the case of a small abridged company where no Directors Report is being filed with the Companies Registration Office a note to the financial statements will be required.

This discussion will be continued in Part B of this publication which will deal with disclosure issues which arise in the Auditors/Accountants Report while Part C will deal with disclosure issues which arise in the Notes to the financial statements.

NOTE
While these are the primary disclosure areas within the Directors Report that have received particular attention from the accounting institutes and other regulatory bodies there are several other disclosures within the Directors Report which are often omitted in error by the Directors.

For a full comprehensive review of your financial statements or to order an up to date set of Pro- Forma Financial Statements for either Audit or Audit Exempt Companies contact Brian Murphy, OmniPro:
Enterprise House, O’Brien Road, Carlow.
T: 059 9183888
E: info@omnipro.ie
W: www.omnipro.ie

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T: 059 91 83888

E: info@omnipro.ie

W: www.omnipro.ie

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