Question

Why must directors provide adequate disclosure in financial reporting? Discuss in 120 to 150 words.

Answer 1

Adequate disclosure is an acccounting concept confirming that all essential information is included in financial statments for an investor or creditor to rely on. The director should provide adequate disclosure in financial reporting because they are responsible for overseeing the financial reporting processes undertaken by management. They have ultimate responsibility for ensuring that legislative requirments in relation to financial reporting, such as filing with regulator bodies and providing financial information to investors/ shareholders, are complied with. The directors responsibility for financial reporting arises from the duty of care directors have to the organisation it is governing. This duty of care is generally written into legislation and other regulatory requirments around the world. These legislative requirments are often supplemented by a formal written agreement between the organisation and the director outlining further specific terms of appointment, including responsibilities for financial reporting. Financial statments are one of the primary vechiles for directors to demonstrate their accountability to those who fund the organisation.