Year-end reporting: the questions every director should be asking

Most companies will shortly be finalising and lodging their company reports for the previous financial year, and directors will be required to review and approve them as part of their duties. If directors sign off on an incorrect report, the penalties can be severe.

It can sometimes be the case that directors without a financial background are concerned about their ability to properly assess the company accounts. They worry they don’t have the knowledge or expertise to make an informed assessment. However, from a governance perspective it is essential that they feel confident that the financial reports have been properly prepared and approve them accordingly.

Company directors must exercise independent judgement, assess the information presented to them, and satisfy themselves that the financial statements provide a fair and accurate representation of the company's position.

This means reviewing the assumptions that underpin the figures, assessing whether the results are consistent with the board's expectations of the business, and identifying any material changes from the prior year that require explanation or further inquiry.

Directors who raise questions are not impeding the reporting process but rather are fulfilling their responsibilities and duties as a director.

Some tips for company directors to help themselves prepare for this include:

· Ensure there is appropriate time allowed to review and assess information. This may mean ensuring that all items are included in the agenda, and enough time allocated, for board and committee meetings to fully discuss reports and other material.

· Ask questions about internal controls. Directors should be able to form a considered view on whether the information presented is fair and accurate and has been subject to appropriate review at all relevant levels of the organisation.

One approach could be to develop a series of questions to send to management, as a way of prompting specific information about the internal controls and compliance framework used to generate financial information. It also helps with identifying whose opinions have informed the auditor's report.

For directors without a technical financial background, this approach is particularly useful as it gives insight into the basis on which the numbers have been determined, without requiring a granular understanding of accounting and book-keeping, or knowledge of the underlying financial records.

· Keep in mind that external auditors will have areas of focus. These can include items subject to management judgement, such as asset valuations, provisioning methodologies, and revenue recognition policies. It can be useful to do some research in these areas to better understand what is being reported on, allowing a more informed assessment of how the auditor has reached their conclusions.

· Another important area is the disclosures and notes. It can be tempting to focus on the numbers but the words and footnotes of the report often contain the most useful insights. It includes related party transactions, changes in accounting policy, and going concern considerations which are often matters that shareholders and institutional investors are likely to be most interested in.

It is a worthwhile idea to approach these disclosures from the perspective of a shareholder. Consider what a reasonably diligent investor would wish to understand, and whether the disclosures would meet their needs.

The beginning of a new financial year is not just an opportunity for forward planning, but for a review of whether the obligations of being a director have been properly satisfied. Directors who engage with year-end reporting - challenging the accounts, assessing internal controls, interrogating audit findings, and reading beyond the headline figures - are well placed to meet their duties and requirements.

In an increasingly complex and scrutinised operating environment, effective oversight of financial reporting is not simply a compliance exercise, it is a cornerstone of good governance and long-term business success.

Katelyn Adams is a corporate advisory partner at HLB Mann Judd Adelaide.