What are The Directors Financial Responsibilities

Statement of Directors Responsibilities

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This Statement of Directors Responsibilities, also known as the Directors Responsibilities Statement, refers to the responsibilities of the Directors for all matters financial, including the Annual Accounts that are submitted to Companies House. These Directors Responsibilities are different to the General Duties of Directors, which are seven specific statutory duties of directors contained in the Companies Acts 2006, CA 2006. The General Duties are applicable to all Board decisions and all Director activities within all UK companies.

Please click here for more information about the General Duties of Directors under the Companies Acts.

The Statement of Directors Responsibilities essentially codifies, within a financial context, the implications of the General Duties for all Company Directors.
The result is a standard “Statement of Directors’ Responsibilities” that should be included within every Directors’ Report contained within the Annual Accounts. The Directors Responsibilities within the “Statement of Directors’ Responsibilities” apply to all directors, irrespective of whether or not the “Statement of Directors’ Responsibilities” has actually been included in the Annual Accounts.

The Statements of Directors Responsibilities are the same for all companies, apart from minor variations of grammar and word sequencing. A typical Statement of Directors Responsibilities is as follows.

Statement of Directors Responsibilities – Actual Standard Text

The directors are responsible for preparing the directors’ report and the financial statements in accordance with applicable law and regulations

Company law requires the directors to prepare financial statements for each financial year under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period In preparing these financial statements, the directors are required to:

  • Select suitable accounting policies and then apply them consistently,
  • Make judgments and estimates that are reasonable and prudent,
  • Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006 They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Directors Responsibilities Statement – End of Standard Text

Implications of These Director Responsibilities for Finance

Neither the job titles, nor the job functions of the individual directors can eliminate or reduce their individual or collective responsibility for the validity of their internal accounts and of their annual year end accounts. Legally the directors cannot argue that they are not their responsibility. They cannot legally assume that the accounts are the sole responsibility of the Finance Director, nor can they rely on the fact that the auditors have not flagged any problems in their audit opinion.

It would be against the law for any director to approve the annual accounts without have a reasonable basis for that approval. The law has clarified what would be required to constitute a reasonable basis for that opinion. To satisfy these requirements every director would need to have a good understanding of finance, coupled with a good knowledge of the company internal financial controls and the financial operations of the company. There are three key requirements, which are discussed below.

Select suitable accounting policies and then apply them consistently,
To be able to know that the accounting policies are suitable and consistently applied, the Directors would first need to know what those policies are and then would need to understand them, in order to decide that they were suitable and consistently applied.

Make judgments and estimates that are reasonable and prudent
To understand whether the judgments and estimates used are reasonable and prudent. Every Director would need to know what those estimates were and how they related to the financial numbers put before them

Prepare the financial statements on the going concern basis unless it is an inappropriate assumption
This requirement requires reasonable cashflow forecasts and profit forecasts to be presented and explained to the Directors. This is perhaps the easiest of the three requirements to fulfil.

The three requirements above must all be satisfied before any director could properly approve their annual accounts. In addition every director has other financial responsibilities, which relate to the daily operations of their company. The Directors must ensure that the accounting records are sufficient to allow them to know the company’s financial position at all times. They are also responsible for taking reasonable steps for the prevention and detection of fraud.

Many directors mistakenly believe that the prevention and detection of fraud is the sole responsibility of the Auditors or of the Financial Director. This is most definitely not true. A careful reading of any Audit Report would confirm that the Audit simply confirms that. based upon the schedules shown to the Auditors and the statements made to the Auditors by the Senior Executives, the accounts present a true and fair view. That is a long way from saying that the accounts are correct. As the statements made, and the schedules shown to the Auditors could have been factually incorrect or deliberately misleading.

The requirements within the General Duties of Directors for the Directors to exercise “Independent Judgement” and “Reasonable Care, Skill and Diligence” would in any case prevent the Directors from simply accepting the assurances of third parties, or even their own staff, that the accounts are correct and that the company assets are safe from fraud and other irregularities.

CPD – Formal Certificates of Professional Development will be issued

These certificates will be accepted as evidence for CPD purposes by most professional institutes and associations.  Our clients, mainly Directors and Senior Executives, regularly award an “Excellent” overall rating.

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Our scheduled courses can also be run as in-house courses on a fixed fee basis, either at your offices or at a convenient venue. We could customise the courses to design and develop specific material to meet any special requirements you may have. For bespoke course requests please contact us with the details of your requirements.

Please click here to see the courses we offer as internal single company courses, at a date and location convenient for your Board of Directors

Please click here to see the scheduled courses we provide for “Director Duties and Responsibilities”

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