What is the Rule ?
Directors are required to confirm that “to the best of their knowledge, nothing has come to the attention of the Board of Directors which may render the interim results false or misleading”. Effective 1 Sep 2006.
This is a negative confirmation rule ie. to state that generally there is nothing wrong, as compared to “generally everything is ok”.
So why are the directors sweating over it?
– unable to rely on the comprehensive audit work done by auditors in year-end audit
– they have to worry whether the internal processes and procedures are vigorious
– especially if the company has operations over many countries with thousands of employee
– wondering to buy professional assurance service and incur more compliance costs
What is the proposed solution?
ACCA has proposed that directors should be allowed to explicit:-
– add a “read-and-act-at-your-own-risk statement” and,
– the numbers are mere estimates.
There is a need to find a balance to give some interim information to shareholders on the performance of the company and yet put certain amount to pressure to ensure credibility of information presented by directors.
Reference – “Use estimates to take heat off directors: Accounting bosy”, Lee Su Shyan, ST 25 Sep 2006