10th July 2018

Financial and accounting duties of a director

All companies are required by law (section 154 of the Companies Act 2006) to have at least one director (a public company must have two).

Companies, as artificial legal entities, cannot act themselves – they need to act through people. That is, a director. The closest that the Companies Act gets to an exact definition of a ‘director’ is in section 250, which says that the term ‘director’ includes “any person occupying the position of director by whatever name called”.

This fast and loose definition - which has its critics - is deliberately intended to cast a wide net. As the ACCA explains, “The broad definition of the term ‘director’ ensures that persons who are commonly referred to in such terms will be directors for company law purposes and will be treated as directors by the law”.

So there’s little wiggle room. And if you’re a director - whatever your taxonomic designation might be in reality - you have a few big responsibilities when it comes to finances and the accounting.

“Company directors need to strongly consider their financial and statutory obligations,” says Faizan Nazar, Senior Finance Expert at Deloitte Propel. “These include fiduciary obligations such as acting in the best possible way to promote the success of the company to the benefit of its shareholders, as well as filing statutory accounts with Companies House on time, submitting annual confirmation statements, registering for VAT when required, plus paying the correct amount of corporation tax, VAT and payroll related taxes on time. Penalties for failure to do any of the above can be severe.”

In short, directors are required to maintain accounting records and to prepare the company’s accounts. The sub-categories involved within these duties are myriad - but there are a two headline requirements:

  • Accounting standards: There is a choice of accounting standards available (e.g. the UK GAAP or the EU-adopted IFRS ). If UK standards are used, then there are special rules in the Companies Act dependant on the size of the business.
  • A directors’ report: A company must prepare a directors' report containing a business review (a certain size of company is exempt from this, though) and quoted companies - that is, a company whose shares can be bought or sold on the Stock Exchange - must prepare a detailed directors' remuneration report.

These accounts and reports may be subject to an audit, depending on whether the company qualifies for an audit exemption or not. The official line is that “your company may qualify for an audit exemption if it has at least two of the following”:

  • An annual turnover of no more than £10.2 million
  • Assets worth no more than £5.1 million
  • 50 or fewer employees on average

The audited accounts and reports must then be filed on public record. Where these accounts and reports are found to be defective, the Act facilitates revision which falls under the director’s responsibility to implement.

In addition to these duties, other requirements can arise by virtue of market or regulatory rules, such as in relation to corporate governance codes or half-yearly reports.

The duties of a director can, of course, be outsourced to a qualified professional, like an accountant. The law permits some freedom here, and how much of your directorial duties you outsource or do yourself, is entirely personal preference. But it must be accurate and timely.

Deloitte Propel can support you with your financial and accounting duties as a director. We offer a wide range of services for businesses, including coaching and advice to businesses seeking funding. Contact us to discuss how we can help you.

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