Integrity in Financial Reporting

As an INED, were you 100% confident in signing the 2020 Accuracy Statements?

Now that the dust has settled on the annual financial reporting processes it is worth giving some thought to the role which the non-executive board member can play in ensuring integrity in financial reporting. The time is right to discuss this now, as the most effective input by the board on the subject of data accuracy and financial reporting integrity is actually made in the ‘off-season’.

At critical reporting times, the board receives several reports, sometimes running to hundreds of pages, as well as the regulatory reporting templates (QRT’s). The board cannot easily assess the accuracy of the results from these reports. It certainly cannot rework the numbers and will not easily spot inaccuracies which have not been found by the various assurance functions in, and external to, the business.

So, the question is ‘what should the INED do to satisfy him/her self that the results have integrity?’.

The answer is not in the outputs, but in the process. The Board should have a detailed process map for the preparation of key financial numbers. Focus must be on (i) points in the process where judgement is applied and (ii) points in the process where control is exercised (manual or auto).

Ask the questions:

• - Do I know where all the key judgements are in the process of producing the financial results?
• - Where key judgements are applied, are they always debated internally and is there always more than one person responsible for the judgement?
• - Are the individual key judgements documented and brought to the board for consideration?
• - Are the controls in the process sufficient and are they demonstrably effective with clear review and signoff?
• - Is there a documented management attestation to board around the internal financial process controls?

If controls are working and judgement is adequately debated, chances are that the outcome is accurate.

Now is the time to discuss the processes and consider the systems, the people, the internal review structures, the various controls in the process, and how the judgements necessary are arrived at and documented.

Put these in place now and signing of accuracy statements next March will be a lot easier.

Seamus@GovernanceMatters.ie

June 2020