Financial literacy of directors
Within the accounting industry, directors and management accountants have major obligations to comply with legal and statutory financial reporting requirements. There are many factors, scenarios and cases like the Centro Case that reinforced and alarmed public about the importance of directors to have background accounting knowledge in order to succeed within their business. Financial accounting is an important element of running any company. Therefore, directors need to have a minimum standard knowledge on accounting principles .
An important aspect of being a company director for an accounting organisation is a responsibility to be confident that the financial accounts conform with the requirements and not the assumption of other qualified candidates to complete work that is required for the director to have done. Other aspects of accountability and responsibility of accounting directors is to make sure that information that from the company’s reporting system exists to in order determine its impact on the organisations performance and opportunities for continuous improvement. By law, directors have duties and obligations they have to comply with , statutory obligations such as; the duty to act with care and diligence, prohibition against the misuse of information obtained by directors, if these actions are not met, serious actions can be placed upon these directors such as the directors for the Centro Case.
Directorship is a status that is placed on an employee that has all authority towards the operation of the success of the company and it is in their job role to solve all problems, actions and decisions necessary to better the company. In any organisations, employees will tend to ask questions to the upper authority figure for any unsolved situation, so reinforcing directors to have a familiarity with accounting allows a director to confidently answer questions. Therefore directors must exercise their powers collectively and the majority decision will prevail. Directors should use an inquiring mind when scrutinizing financial statements and authorising the financial statements at the end of the financial year with the essential accounting background knowledge in order to complete their job role. Failure for a director to read and question the financial statement appropriately is regarded as negligent of the director in his duties under the Corporations act .
It defeats the purpose of directors managing an accounting company without any accounting background. It can be related to an example, Mr X owns an ice-cream company, but unfortunately he does not know how to make a chocolate Sunday. If accounting is the area of industry you choose to specialise in, then you will need to have in-depth knowledge about your speciality and passion .
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Rigney, K. (2011, July 20). DIRECTORS AND FINANCIAL STATEMENTS. Retrieved October 1, 2011, from YELDHAM PRICE O'BREIN LUSK: http://www.ypol.com.au/pdfs/Directors_Financial_Statement.pdf