What Australian company directors don’t know about accounting

Turning to experts didn’t help the Centro directors avoid prosecution in the end; directors are ultimately responsible.

“It’d be good to get a bit more clarity in the law as to what extent directors can rely on the experts, and to what extent they can delegate to their auditing committees.”

The survey asked specific questions about what areas of accounting directors thought they had the weakest understanding of. Some common answers included:

• The impairment of assets
• Changes in foreign exchange rates
• Depreciation and amortisation
• Taxation

What you can do to fix your weak spots

Organisations such as the Institute of Company Directors and Chartered Secretaries Australia already offer a range of courses to help directors improve their financial literacy.

“One of the interesting points that emerged from the survey was that there wasn’t an awareness of these types of courses,” Lewis says. “Many made suggestions that they should exist, without knowing they already did. There are quite an array of accounting training courses for directors … and frankly they’re quite good courses.”

What your company can do to make sure its directors have the understanding they need

The taskforce also made a number of recommendations on how financial literacy among directors could be improved on a company level, including:

• Verifying the financial credentials of directors as part of the recruitment process and arranging for additional training for directors who may benefit from it
• Including in the board induction process a briefing from internal/external auditors on accounting policies and issues of particular significance to the company’s business
• Having the internal/external auditor run periodic board workshops on specific accounting issues relevant to the company’s businesses
• Having the external auditor present an annual accounting update to the entire board before they sign off on year-end accounts
• Inviting all directors as observers to meetings of the audit committee so that they can learn from the directors with accounting/audit expertise
• Inviting non-executive directors as observers to analyst and investor presentations so that they can hear directly from market professionals on the accounting and financial issues of concern to them.

Source: The Financial Reporting Council