Financial Reporting to Shareholders and External Audit Flashcards
(5 cards)
Why is financial reporting important?
Stakeholders:
1. Investors - to assist in their decision to hold, buy or sell.
2. Creditors - interested in the security of their debt.
3. Suppliers - to understand the company’s ability to pay for their goods or services.
4. Employees - to understand the security of their employment.
5. Customers - to understand the company’s ability to provide their goods or services.
6. Government - to assess company’s taxation.
7. Regulators - to help assess whether company is complying with laws and regulations.
8. Public - to understand ability to participate in local economy and activities.
Requirements for financial reporting
The Companies Act 2006 requires every company you keep adequate accounting records which are sufficient to:
- show and explain the company’s transactions;
- disclose with reasonable accuracy, at any time, the financial position of the company; and
- enable the directors to ensure that any accounts required to be prepared comply with the requirements of the CA2006 and, where applicable, International Accounting Standards (IAS).
The UKCGC and Listing, disclosure guidance and transparency rules (DTRs, LR 9.8) requires that a statement be included in the annual report on the appropriateness of adopting the ‘going concern’ basis of accounting and on the directors’ assessment of the prospects of the company (‘viability statement’).
Going concern = that the company is able to continue to trade for the foreseeable future.
Accounting standards
Standards issued by the IFRS Foundation and the International Accounting Standards Board ( IASB) to provide a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.
UKCGC and Financial Reporting
Principle M - the board should establish formal and transparent policies and procedures to ensure the independence and effectiveness of internal and external audit functions and satisfy itself on the integrity of financial and narrative statements.
Principle N - the board should present a fair, balanced and understandable assessment of the company’s position and prospects.
Provision 27 - the directors should explain in the annual report their responsibility for preparing the annual report and accounts, and state that they consider the annual report and accounts, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the company’s position, performance, business model and strategy.
Provision 30 - in annual and half-yearly financial statements, the board should state whether it considers it appropriate to adopt the going concern basis of accounting in preparing them and identify any material uncertainties to the company’s ability to continue to do so over a period of at least 12 months from the date of approval of the financial statements.
23.30
