Board of Directors Role in Financial Reporting: Corporate Governance

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Table of Contents

Executive Summary
Introduction
Problem Statement
The Effective Board of Directors Role in Financial Reports
Recommendations
Conclusion
Reference List

Executive Summary

In this paper, the concept of financial reporting is thoroughly analyzed. First, it is expected to define what a financial report is, and why millions of companies around the globe are interested in creating the best statements. Second, the roles of the board of directors should be explained and discussed through financial reporting as one of the major financial activities. Finally, attention has to be paid to recommendations that the board of directors must follow to stay effective and competitive.

Introduction

There are many ways for companies to share and store their information about financial activities, goals, and results achieved. A financial report, also known as a financial statement, is a collection or record of business activities and performance, including the chosen position, past, current, and future cash flows. In his article, Worrell (2017, para. 1) compares financial statements with kales as people know that this product is good for health, but it is usually hard to digest.

Despite a variety of attitudes toward this kind of work, financial reports have to be written regularly, and the role of the board of directors cannot be ignored. Although these people are not directly involved in the production of accounting documents, their task is to approve statements, analyze the content, detect problems, and find solutions (Cossin and Lu, no date, para. 4). The goal of this paper is to discuss the effectiveness of the board of directors’ activities in financial reports through the prism of corporate governance concepts and regulations.

Problem Statement

The major problem within this discussion is the necessity to explain the importance of understanding the role of the board of directors in financial report preparations. According to the US director-centric model of corporate governance, the board of directors obtains broad authority to analyze business affairs, make management decisions, and develop judgments (Wachtell, Lipton, Rosen & Katz, 2019, para. 12). Ineffective completion of their tasks could bring a number of negative results and failures in the business environment. Still, many companies continue working and neglecting rules and regulations.

The Effective Board of Directors Role in Financial Reports

To be effective, all the directors of the board have to recognize and understand their responsibilities to introduce informative and credible financial statements. There are several federal securities laws within the frames of which an obligation to file annual and periodic reports is defined (Wachtell, Lipton, Rosen & Katz, 2019, para. 52). It is necessary to promoted internal control over these activities, and the board of directors should check if related certifications are present in a team. As soon as control duties are clarified, the board of directors must apply special accounting policies, regarding the position of the organization and local legislations. Their responsibility is to explain what story has to be presented in a financial report and make sure that all the potential writers and contributors to the statement are properly aware and trained.

Another significant aspect of financial reporting is to assess the results and continue taking similar steps. Worrell (2017, para. 17) says about the digesting financial reports monthly as a habit in order to learn what actually happens at the company. Any report is a combination of a balance sheet that summaries assets and liabilities, income statements that show how much money is spent and earned, and cash flow statements (Cossin and Lu, no date, para. 5). Effective policies, control, and time management are the main responsibilities of directors in financial reports.

Recommendations

To complete their duties and avoid losses, the board of directors has to improve their activities and follow recommendations. One of them is given by Worrell (2017, para. 16) about the necessity to use financial reports to track the trends. As soon as a team creates a report, an opportunity to compare the best and worst results occurs. Regular evaluation is effective for companies to understand what they do right and what goes wrong.

Another recommendation is based on questions that the board of directors should ask. It is not enough to give orders and control people within the same working environment. Some pieces of advice, personal experiences, and observations will help to understand how to improve a situation in a company. Sometimes, it is easy to ask a question but hard to find an answer, and the responsibility of a director is to make sure that appropriate questions are posed to the right people.

Conclusion

In general, the evaluation of the role of the board of directors in financial statements shows how crucial each decision and activity for an organization. On the one hand, a financial report is a result of work during a certain period of time. On the other hand, the same document is a plan for people for their future achievements and actions. The board of directors guides and supports people and, at the same time, controls and evaluates the staff through their balance sheets and cash flows. Financial reporting is not a simple task either for the staff or the board of directors. Still, if all the participants know their duties and receive effective training, their cooperation should help achieve good results and benefits.

Reference List

Cossin, D. and Lu, A. H. (no date) A note on finance essentials for directors. Web.

Wachtell, Lipton, Rosen & Katz. (2019) USA: corporate governance 2019. Web.

Worrel, D. (2017) ‘Why reading your financial statements is a lot like eating kale’, Forbes. Web.

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