It's the reporting season, and directors are busy making
sure they comply with the disclosure requirements set by the
Corporations Act and the ASX Listing Rules. Listed companies will
shortly be releasing their results, if they haven't done so
Although the market's slide over the last year may have left
a tarnish on once shiny results, directors must ensure that the
results they disclose are accurate and reflect the company's
true financial position.
Directors are at serious risk of breaching their duties if they
provide incomplete or incorrect information, or omit information
(whether falsely or inadvertently), which will therefore not give a
true and fair view of their accounts.
Directors' duties in relation to accounts
Directors, in respect of financial reports, must exercise their
powers and discharge their duties for a proper purpose and in good
faith in the best interest of the corporation. They must act with a
degree of care and diligence, which a reasonable person would
exercise if they held a similar position.
When preparing or reporting the financial reports, if the
director omits information which will make the financial report
materially misleading or fails to make adequate disclosure of
doubtful debts, overstates reported profits or inflates asset
values (or more poignantly, fails to appropriately write down the
values), the director may be held to be guilty of making a material
misstatement and omission and be in breach their duties.
Even though directors are permitted to delegate their duties,
they must be well informed about matters relating to the company.
Where a director has delegated financial responsibility of the
accounts, for example to an accountant or an officer of the
company, he or she may still be found to be in breach of their
duties and found to have not acted with a reasonable degree of care
and diligence if they did not check the financial accounts, failed
to take the reasonable steps to ensure that statements were not
misleading, or if information was omitted, which makes the reports
Directors or officers may be protected from an alleged breach of
their duties if they can show that they made the judgment that the
financial statements were true and fair and they:
acted in good faith and for a proper purpose;
did not have a material personal interest in the subject matter
of the judgment;
informed themselves about the subject matter to the extent that
they reasonably believed was appropriate; and
rationally believed that the judgment was in the best interests
of the corporation.
However, even if a director relies on an accountant or another
individual to provide information in relation to the accounts,
ultimately the responsibility of financial reporting lies with the
director. Keeping these obligations and the risk of breaching these
duties in mind, there are a number of duties a director has in
relation to the financial accounts.
To read this document in its entirety please click
On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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