In Part 1 & 2 of this article we dealt with the common financial reporting issues within the Directors Report and Auditors Report which have become subject to particular scrutiny by both the accounting institutes and representative or regulatory bodies. In this article we will discuss the common financial reporting disclosure issues which are prevalent in the Statement of Directors’ Responsibilities.
Statement of Directors Responsibilities
The Statement of Directors Responsibilities is an important statement to be included in all sets of Financial Statements of Limited companies whether they have been subject to audit or not. It is best practice to include the Statement in abridged sets of accounts, again be it a company subject to audit or an audit exempt company.
The location in the Financial Statements of the Statement varies depending on which accounting software or templates one is using however the two options are; within the Directors Report as a separate paragraph or as a Statement on its own included in the Financial Statements after the Directors Report but before the Auditor’s or Accountant’s Report. Best practice would suggest that including the Statement of Directors’ Responsibilities as a stand alone Statement in the Financial Statements is the preferred option as it allows for the Statement then to be more easily accessible for inclusion in abridged accounts (while the Directors Report will not obviously be included)
The Responsibilities of the Directors to be included in the Statement of Director’s Responsibilities can be sub-divided into two categories
o General Responsibilities (to be included in both Audited and Un-Audited Companies)
o Directors’ declaration on un-audited financial statements (only required for Un-Audited Companies)
General responsibilities
There are typically three paragraphs which should be included in every Statement of Directors’ Responsibilities (audited and un-audited companies) as follows
Paragraph 1
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable Irish law and Generally Accepted Accounting Practice in Ireland, including the accounting standards issued by the Accounting Standards Board and published by the Institute of Chartered Accountants in Ireland/Certified Public Accountants/Institute of Chartered Certified Accountants.
Paragraph 2
Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing those financial statements, the directors are required to:-
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
Paragraph 3
The directors confirm that they have complied with the above requirements in preparing the financial statements. The directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Acts 1963 to 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
A fourth paragraph as set out below should be included in the Statement where financial information relating to the company is included on the company’s website.
Paragraph 4
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors’ declaration on un-audited financial statements
An un-audited set of Financial Statements require further disclosures in the form of Declarations in the Statement of Directors’ Responsibilities. There are three Declarations that should be made as follows
Declaration 1
The directors approve these financial statements and confirm that they are responsible for them, including selecting the appropriate accounting policies, applying them consistently and making, on a reasonable and prudent basis, the judgments underlying them. They have been prepared on the going concern basis on the grounds that the company will continue in business.
Declaration 2
The directors confirm that they have made available to Compliant Accountant & Co., the company’s accounting records and provided all the information necessary for the compilation of the financial statements.
Declaration 3
The directors confirm that to the best of their knowledge and belief, the accounting records reflect all the transactions of the company for the year ended ????
Appendix 4 of APB Bulletin 2006/01 (for Irish registered companies) and more recently Appendix 11 of APB Bulletin 2009/02 (for UK registered companies) provide illustrative examples of the Statement of Directors Responsibilities.
Preparers of financial statements should be watchful in ensuring that all references to Companies Acts in Ireland should be to the Companies Acts 1963 to 2006 and that all references to Companies Acts in the UK should be to the Companies Act 2006.
Two Directors are required to sign the Statement on behalf of the company.
PLEASE NOTE
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 the OmniPro offices at: 059 91 83888.
For an in-depth review of Financial Statements Disclosures attend the forthcoming "Financial Reporting Requirements in a Downturn" seminar, hosted by Brian Murphy, OmniPro.
Dates for this event:
Kerry - 22nd May 2009
Dundalk- 25th May 2009
Galway- 26th May 2009
Limerick-27th May 2009
Kilkenny-28th May 2009
Dublin- 29th May 2009
