| LO5 – Explain the purpose and content of the report that describes management’s responsibility for financial statements. |
The final piece of information often included with the annual financial statements is a report describing management’s responsibility for the accurate preparation and presentation of financial statements. This statement underscores the division of duties involved with the publication of financial statements. Management is responsible for preparing the financial statements, including estimates that underlie the accounting numbers. An example of an estimate is the useful life of property, plant and equipment used to calculate depreciation as shown in the preceding note 3(d).
On the other hand, the independent auditor is responsible for examining the financial statement information as prepared by management, including the reasonableness of estimates, and then expressing an opinion on their accuracy. In some cases, the auditor may assist management with aspects of financial statement preparation. For instance, the auditor may provide guidance on how a new accounting standard will affect financial statement presentation or other information disclosure. Ultimately, however, the preparation of financial statements is management’s responsibility.
A Canadian example of a statement describing management’s responsibility for the preparation and presentation of annual financial statements is shown below.
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MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS |
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The accompanying financial statements of the company are the responsibility of management. The financial statements were prepared by management in accordance with accounting principles generally accepted in Canada, applied on a consistent basis, and conform in all material respects with International Accounting Standards. The significant accounting policies, which management believes are appropriate for the company, are described in Note 3 to the financial statements. |
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Management is responsible for the integrity and objectivity of the financial statements. Estimates are necessary in the preparation of these statements and, based on careful judgments, have been properly reflected. Management has established systems of internal control that are designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, and to produce reliable accounting records for the preparation of financial information. |
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The board of directors is responsible for ensuring that management fulfils its responsibilities for financial reporting and internal control. The audit committee of the board, which is comprised solely of directors who are not employees of the company, is appointed by the board of directors annually. The audit committee of the board meets regularly with financial management of the company and with the shareholders’ independent auditor to discuss internal controls, audit matters, including audit scope and auditor remuneration, and financial reporting issues. The independent shareholders’ auditor has unrestricted access to the audit committee. The audit committee reviews the annual financial statements and reporting to the board, and makes recommendations with respect to their acceptance. The audit committee also makes recommendations to the board with respect to the appointment and remuneration of the company’s auditor. |
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Management recognizes its responsibility for conducting the company’s affairs in compliance with established financial standards and applicable laws, and maintains proper standards of conduct for its activities. |
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(signed) Bill Brown II, Chief Financial Officer March 3, 2019 |
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