Lesson 3 of 3 · 8 min
What the directors personally assert
One statement in every report is a set of claims the directors make in their own names, including that the accounts were prepared on a going concern basis.
Most of an annual report describes. One short passage asserts. The Directors' Responsibility Statement is a set of claims the directors make in their own names, and because the wording is prescribed, you can read it in any company's report and know exactly what has been claimed.
| The directors state that | In plain terms |
|---|---|
| Applicable accounting standards were followed, with explanation of material departures | We used the standard rules, and said so where we did not |
| Accounting policies were selected and applied consistently, with reasonable and prudent judgments, to give a true and fair view | We chose our methods carefully and kept to them |
| Proper and sufficient care was taken to maintain adequate accounting records, to safeguard assets and to prevent and detect fraud | We kept the books properly and looked for fraud |
| The annual accounts were prepared on a going concern basis | We believe the company can continue operating |
| For a listed company: internal financial controls were laid down and are adequate and operating effectively | Our internal controls exist and work |
The internal financial controls assertion is worth its own attention, because the statute defines the term: the policies and procedures adopted for ensuring the orderly and efficient conduct of the company's business. A listed company's directors state that these were laid down, are adequate, and were operating effectively. That is three separate claims in one sentence, and an auditor may take a view on it.
Is this not just boilerplate?
KabirTara
Kabirasking
Every company says the same five things in the same words. Does reading it tell me anything?
Taraexplaining
The words being identical is what makes it readable. When a required, standardised statement is present and unremarkable, that is the expected state. Reading it takes a minute and you have checked it rather than assumed it.
Kabirasking
And if something in it were different?
Taraexplaining
Then it would be one of the most visible signals in the document, precisely because everything around it is standard. That is the value of a prescribed form — it makes a departure impossible to hide in ordinary language.
Check yourself
1 / 3
Kabir asks
What does the going concern assertion state?
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