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Requirements for financial reporting - Coggle Diagram
Requirements for financial reporting
CA2006
Requires every company to 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 at that time
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
Requires the directors of every company to prepare accounts for the company for each of its financial years
The accounts must comprise a balance sheet as at the last day of the financial year and a profit and loss account, both of which should give a true and fair view of the company's financial affairs
The accounts must be approved and signed on behalf of the board by a director
Many people believe that it is the responsibility of the external auditors to give assurance that the financial statements of the company are free from material error and mis-statement and that they gave a true and fair view of the company's financial affairs. Under CA2006, it is the responsibility of the directors of a company not to approve and sign off accounts unless they are satisfied that they give a true and fair view of the assets, liabilities, financial position and profit or loss.
The external auditor of a company is carrying out his functions is able to rely on this duty. This is why external auditors as part of their audit request the company to sign a letter of representation which attests to the accuracy of the financial statements that the company has submitted to the auditors for their analysis
Listing, Disclosure Guidance and Transparency Rules
Listed companies, in addition to CA2006 requirements, as part of their accountability to shareholders are required by the FCA and the LSE to comply with certain continuing obligations to maintain their listing
Include provisions for voluntary preliminary statements and dividend announcements and annual report disclosures
One of the requirements is that a statement should 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, this is often referred to as the viability statement
Standards
The IFRS are issued by the IFRS Foundation and the International Accounting Standards Board to provide a common global language for business affairs so that company accounts are understandable and comparable across international boundaries
In the UK, IFRS are required for listed companies
The components of financial statements complying with IFRS are as follows
Statement of comprehensive income
Statement of financial position
Cash flow statement
Statement of changes in equity
The notes to the accounts - the CS may be involved in the drafting of some of these such as notes relating to share capital and emoluments
UK standards require directors to satisfy themselves based on the information available to them that it is reasonable for them to conclude that the company is a going concern so that the financial statements can be prepared on a going concern basis rather than a break up basis
The UK Governance Code
Requires boards of listed companies, via their audit committees to establish formal and transparent policies and procedures to satisfy themselves on the integrity of their company's financial statements and any formal announcements relating to the company's financial performance
Directors are also required to explain in their annual report their responsibility for preparing the annual report and accounts and make a statement that they consider that the annual report and accounts is fair, balanced and understandable and provides the information necessary for shareholders to assess the company's position, performance, business model and strategy
Requires the board to state
Whether it considers it appropriate for the company to adopt a going concern basis of accounting when preparing the financial statements
Whether there are any material uncertainties and if so, to identify them, to the company's ability to do so over a period of at least 12 months from the date of approval of the financial statements
Taking into account the company's current position and principal risks how has it assessed the prospects of the companyy, over what period it has done so and why it considers that period to be appropriate
Whether it has a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of assessment, drawing attention to any qualifications and assumptions necessary