Making Sound Financial Decisions

Hashim Salle, Chairman, education committee, SAIPA


MANAGEMENT MI 17 MAKING SOUND FINANCIAL DECISIONS Unless they are in charge of the finance portfolio, most company directors are not accounting experts – and nor should they be. After all, they should have the input of an appropriately qualified and experienced Professional Accountant on which to depend. However, the role of that accountant can extend somewhat further into the boardroom, particularly in light of the new Companies Act which has just come into operation.

That's because, the professional accountant is equipped with the critical embedded knowledge to help any director to comply with the broad requirements of the position. The key issues for any director Include complying with common law and statutory duties as set out in the Companies Act as amended, as well as with any other duties imposed on that director by provisions in the articles of association of the company they serve. The role of any director includes identifying any conflicts of personal interests with those of the company; ensuring that any contracts entered into on behalf of the company are within the scope of the company; ensuring that liability Insurance is in place and the conditions understood; and seeking Independent professional advice where necessary to enable better understanding of a director's position. A professional accountant must have basic Corporate Law knowledge attested to in their Academic Programme.
As statutes, by their nature, are dynamic and ever-changing, the professional accountant is duty-bound to be updated through lifelong learning programmes called Continuous Professional Development. With major changes such as those ushered in with the new Companies Act, there is a very real possibility that company directors, comfortable with the existing way of doing things, may fall foul of the new requirements. Such acts of omission or negligence can have serious adverse effects for the individual and for the company they serve. However, through CPD as well as through a succession of focused workshops and other interventions, companies can take substantial steps to provide their directors with the knowledge they need regarding the appropriate implementation of the law. This falls squarely in the category of seeking independent advice in the execution of directorial duty. As far as the professional accountant is concerned, he or she should be able to advise directors in the substantive matters of finances. As a ready example, I point to a key element of the director's functions, that of approving the distribution of the company's assets which is typically done through the declaration of dividends.
Before any director can give his or her stamp of approval of such distributions, he or she is obliged to have considered the solvency and liquidity of the company. Any failure to do such By Hashim Salle, Chairman, education committee, SAIPA As a level 8 NQF professional, the professional accountant has the required skill and knowledge to assess compliance with the business purpose test by which any director's decisions are judged. In short, that's a key Input that any director is well advised to seek if they want to make smarter financial decisions. considerations may cause such directors to be held personally liable. To limit the risks, directors may engage with the professional accountant to do such solvency and liquidity tests. Risk is therefore reduced and the director can motivate his/her decision knowing that his/her advisor has Professional Indemnity Insurance cover.