The board of directors has several important responsibilities with respect to financial reporting. These responsibilities include:
- Overseeing the preparation and fair presentation of the financial statements: The board is responsible for overseeing the preparation and fair presentation of the company’s financial statements. This includes ensuring that the financial statements are prepared in accordance with Canadian generally accepted accounting principles (GAAP).
- Approving the financial statements: The board is responsible for approving the company’s financial statements before they are filed with securities regulators and distributed to shareholders.
- Establishing and overseeing the company’s internal control over financial reporting (ICFR): The board is responsible for establishing and overseeing the company’s ICFR. ICFR is a system of controls that is designed to ensure that the company’s financial reporting is accurate and reliable.
- Reviewing the financial statements and ICFR with management: The board is responsible for reviewing the company’s financial statements and ICFR with management on a regular basis.
- Disclosing any material weaknesses in ICFR to shareholders: The board is responsible for disclosing any material weaknesses in ICFR to shareholders in the company’s annual report.
The board’s responsibilities for financial reporting are set out in several corporate governance codes and standards in Canada. For example, the Canadian Code of Corporate Governance (CCCG) recommends that the board establish an audit committee to oversee the company’s financial reporting process.
The board can also delegate some of its financial reporting responsibilities to management. However, the board retains ultimate responsibility for financial reporting. This means that the board must regularly review the company’s financial reporting policies and procedures, and take corrective action if necessary.
Benefits of effective financial reporting
Effective financial reporting can provide several benefits to companies, including:
- Increased transparency: By providing accurate and reliable financial information to shareholders, companies can increase transparency and build trust with their investors.
- Improved access to capital: Companies with strong financial reporting are more likely to be able to attract investors and raise capital.
- Reduced risk: By identifying and managing financial risks effectively, companies can reduce the risk of financial losses.
- Enhanced reputation: Companies with strong financial reporting are more likely to be seen as credible and trustworthy by their customers, suppliers, and other stakeholders.
By understanding its responsibilities for financial reporting and taking steps to implement effective financial reporting practices, the board can help to ensure that the company’s financial reporting is accurate, reliable, and transparent. This can lead to a number of benefits for the company, including increased access to capital, reduced risk, and enhanced reputation.
This article is for informational purposes only and is not legal advice. Contact us today to discuss your specific situation.