Huntley Legal Logo

Our clients say...

Marie took the time to understand our business, which made her advice very pertinent and useful.

Guillaume Justier
Inmeres Solutions Limited

Read more reviews

Directors. Do you understand your responsibilities around company accounts?

by Marie Huntley

Directors. Do you understand your responsibilities around company accounts?

You probably know that company accounts need to be filed at Companies House for each financial year. You may also know that directors are required to approve the accounts before they are filed.

While the board is usually unanimous, this is not required, and accounts can be filed on a majority basis. However, whenever agreement is less than unanimous, there are always issues.

This article relates to private limited companies in the UK, not listed or quoted companies, and explains your responsibilities and risks.

Before a director can approve and sign the accounts, they must be satisfied that the accounts give a true and fair view of the financial position of the company. If one or more directors are not convinced of this, the accounts should be investigated and adjustments made.

If the director is still not satisfied, it is likely that the company and/or the dissenting director will need to take advice about the significance of the issues and what can be done about them.

If, after this, the dissenting director wants to distance themselves from the accounts that the other directors have approved, they may even consider resigning. This might seem a bit dramatic, but it’s important to look at the responsibilities of a director in relation to the accounts.

Although not all directors are required to approve the accounts, they do all need to sign a formal statement that all relevant information has been given to the accountants/auditors. If a director is not convinced about this information being a true and fair view, they are unlikely to be willing to sign the statement.

This is automatically problematic as it forces the accountants/auditors who would be expected to give their report without qualification – would they be happy to finalise the accounts in the face of dissent from part of the board?

I am sometimes asked by directors whether every director needs to physically sign or if it’s only one. Once the board has made the approval decision, only one needs to sign the balance sheet, the directors’ report and any strategic report submitted formally to Companies House.

Accounts

If the accounting records are not reasonably accurate, every officer of the company is potentially criminally liable for a fine or imprisonment. That means every director and any other people who are officers (even if they are not be signed on at Companies House) including the Company Secretary, Head of Finance, shadow directors who have taken part in the production of the accounts for filing, and even data protection officers who may not be responsible for the accounts.

Similarly, any director of the company who knows the accounts are somehow not compliant, or who is careless about the legal requirements, may be guilty of a criminal offence.

To make false statements to auditors, or to publish accounts you know are false, can get you seven years!

Directors’ report

This report should include:

  • List of all directors during the financial year
  • Recommendations for any dividends
  • Details of any indemnities to reduce liabilities (of directors)
  • Details of any political donations over £2000

For medium/large companies, it should also include information about risk, post-balance sheet events, future developments, and employment of disabled persons.

Some small companies – micro-entities – are exempt under the Companies Act.

Risks

It is an offence not to file the report and accounts on time.

If the directors’ report is not compliant with the Companies Act requirements, every director of the company has committed an offence, either if they have approved it, or if they failed to take steps to prevent it being approved.

There is a similar offence about the statement of disclosure to auditors. Where a director has made an untrue or misleading statement, they may not just be subject to a fine, but it could lead to two years’ imprisonment.

In addition, if there are omissions in relation to the accounts or directors’ report, directors can be liable to compensate the company for any losses it suffers as a result of the report.

What this means to you

You need to feel confident in discharging your duties, and not put yourself at risk of liabilities, fines and imprisonment. However, I speak to many directors who have no idea whether the accounts are appropriate to sign because they don’t know whether or not they give a true and fair view of the company’s financial position.

I recommend you make the effort to learn what you need to know – remember, even if you are a non-executive director these duties apply to you.

There are many training courses about demystifying company accounts for non-financial managers.

Take a course so you have a sufficient understanding of the accounting documents to understand, for example, whether the accounts declare the company has made a loss or a profit, and if they identify the company’s debts adequately and correctly.

Developing the competency to deal with all this is a really important part of your responsibilities to the company, as well as being a really important part of personal self-preservation and risk management.

I’m not saying you should get qualified to the level of a professional accountant, but you should know enough that you can read accounting information, have the confidence to ask questions about it, and not be forced rely on crossing your fingers and hoping for the best or saying, “Well, if Fred is happy with the accounts, that is good enough for me,” every time the accounts are approved. After all, Fred may not be anything like as clever/honest/financially aware as he would like you to think, or he may be secretly taking his lead from you.

The very minimum level of training is to equip yourself to ask the right questions of those who do have greater expertise. This can be a great shield for such risks, and at the least is evidence that you took proper steps to manage your responsibilities.

It is very dangerous to rely on those around you who claim to know more. Sometimes, they are not worthy of that level of trust. Many directors are at severe risk by depending on well- meaning but incompetent or downright dishonest people.

We help company directors understand their responsibilities and resolve any issues that may arise. For further help, give us a call.

Make An Enquiry

For further advice, please call us now on 020 3609 8764 or complete a Free Online Enquiry and we will be pleased to help you.

Contact Us

Legal solutions for your business

 

Our clients say...

Marie took the time to understand our business, which made her advice very pertinent and useful.

Guillaume Justier
Inmeres Solutions Limited

Read more reviews