The increasing complexity of accounting standards is making it more difficult for company directors to acquire the level of knowledge required to sign off on financial accounts, according to an inaugural survey of directors’ financial literacy.
The Financial Reporting Council (FRC) this week released the results of its survey on the literacy of Australian company directors, compiling results from 385 respondents including directors and financial professionals.
In some observations accompanying the report, the FRC notes that although the responses were diverse, “almost all the respondents acknowledged there were issues and challenges for directors in acquiring and maintaining the level of financial literacy” they needed for the role.
Directors generally rated their personal level of financial literacy higher than their fellow directors, while accounting professionals surveyed generally rated directors “at notably lower levels” than the directors themselves.
Kevin Lewis, the chair of the FRC Board Education Task Force, said many respondents had mentioned the need for more financial education for directors, without realising that there was already “a lot out there in this regard.”
“This tells us that the providers of those services could probably do a little more about marketing them,” Lewis said in a telephone interview.
“The suggestion is that ASIC, for example, could have a central page on its site where the different training organisations might be listed.”
The report makes a number of suggestions on improving directors’ financial literacy, including:
– verifying the financial credentials of directors as part of the recruitment process and arranging for any additional training required.
– a briefing from auditors on accounting policies as part of directors’ inductions.
– Periodic workshops on specific accounting issues.
Many respondents suggested a system of compulsory accreditation for directors requiring them to have a level of financial literacy and compulsory continuing professional development, although the FRC said it saw “major practical difficulties” in implementing these suggestions.
“The FRC does not believe that a one-size-fits-all approach would work, given the different expectations of directors,” the report says.
Lewis said the FCR had written to many organisations, such as the ASX, the professional accounting bodies and director’s organisations, informing them of the results of the survey.