I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

framework surrounding companies should be to help companies do business. A director's main aim 

should be to create wealth for the shareholders. 

In essence, this principle means that the law should encourage long-termism and regard for all 

stakeholders by directors and that stakeholder interests should be pursued in an enlightened and 

inclusive way. 

When exercising this duty directors should consider: 

 The 

consequences of decisions in the long term 

 The 

interests of their employees 

 

The need to develop good relationships with customers and suppliers 

 The 

impact of the company on the local community and the environment 

 

The desirability of maintaining high standards of business conduct and a good reputation 

 

The need to act fairly as between all members of the company  

This list identifies areas of particular importance and modern day expectations of responsible business 

behaviour, for example the interests of the company's employees and the impact of the company's 

operations on the community and the environment. 

 EXAM FOCUS POINT 

The ACCA examining team reported that questions on governance have been particularly badly 

answered in the past. Make sure you read this section carefully and be prepared to answer questions 

on it in your exam.  

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CHAPTER 1  

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  INTRODUCTION TO ACCOUNTING 

 

13 

5.2 Responsibility for the financial statements 

Directors are responsible for the preparation of the financial statements of the company. Specifically, 

directors are responsible for:  

 

The preparation of the financial statements of the company in accordance with the applicable 

financial reporting framework (eg IFRSs) 

 

The internal controls necessary to enable the preparation of financial statements that are free 

from material misstatement, whether due to error or fraud 

 

The prevention and detection of fraud  

It is the directors' responsibility to ensure that the entity complies with the relevant laws and 

regulations. 

Directors should explain their responsibility for preparing accounts in the financial statements. They 

should also report that the business is a going concern, with supporting assumptions and qualifications 

as necessary.  

Directors should present a balanced and understandable assessment of the company's position and 

prospects in the annual accounts and other reports, such as interim reports and reports to regulators. 

The directors should also explain the basis on which the company generates or preserves value and the 

strategy for delivering the company's longer-term objectives.    

Companies over a certain size limit are subjected to an annual audit of their financial statements. An 

audit is an independent examination of the accounts to ensure that they comply with legal requirements 

and accounting standards. Note that the auditors are not responsible for preparing the financial 

statements. The findings of an audit are reported to the shareholders of the company. An audit gives the 

shareholders assurance that the accounts, which are the responsibility of the directors, fairly present the 

financial performance and position of the company. An audit therefore goes some way in helping the 

shareholders assess how well management have carried out their responsibility for stewardship of the 

company's assets. 

 

6

   The main elements of financial reports 

The principal financial statements of a business are the statement of financial position and the 

statement of profit or loss.  

6.1 Statement of financial position 

The 

statement of financial position

 is simply a list of all the assets owned and all the liabilities owed by a 

business as at a particular date. 

 

It is a snapshot of the financial position of the business at a particular moment. Monetary amounts are 

attributed to each of the assets and liabilities. 

6.1.1 Assets  

An asset is something valuable which a business owns or can use. The International Accounting 

Standards Board (IASB) defines an asset in its document, the Conceptual Framework for Financial 

Reporting 2018, as follows: 

'An 

asset

 is a present economic resource controlled by the entity as a result of past events. An economic 

resource is a right that has the potential to produce economic benefits.' 

 

(Conceptual Framework for Financial Reporting 2018, paras. 4.3 and 4.4) 

 

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