The Annual Report of Pearson plc contains a Statement of Directors’ Responsibilities. This includes the following paragraph: The directors are responsible for keeping adequate accounting records that

Question

The Annual Report of Pearson plc contains a Statement of Directors’ Responsibilities.
This includes the following paragraph:
The directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the company’s transactions and disclose with
reasonable accuracy at any time the financial position of the company and the
Group. This enables them to ensure that the financial statements and the report on
directors’ remuneration comply with the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation. They are also responsible
for safeguarding the assets of the company and the Group and for taking
reasonable steps for the prevention and detection of fraud and other irregularities.

1 Explain what is meant by ‘adequate accounting records’
2 Why does the statement refer to ‘reasonable’ accuracy rather than ‘total’ accuracy?
3 What is meant by ‘safeguarding the assets of the company’?

Accepted Answer

1 Adequate accounting records must be kept that are sufficient to explain the
company’s transactions and to disclose with reasonable accuracy at any time the
financial position of the company. In particular, the accounting records must
contain entries from day to day of all money received and expended with details
of transactions, and a record of assets and liabilities.
A full and properly operated double-entry bookkeeping system will ensure
that ‘proper accounting records’ are maintained.
2 The company refers to ‘reasonable accuracy’ rather than ‘total accuracy’ due to
the fundamental quality characteristic of faithful representation. Although the

overall aim of financial statements should be to present complete, neutral and
error-free information, a reasonable attempt at this is acceptable. In any case,
total accuracy might be impossible to achieve, particularly in trying to assess a
current value for assets such as land, buildings, machinery and inventory.
3 The directors of the company manage the business on behalf of the shareholders.
As such, they are responsible for the good management of all aspects of
the company’s finances. Part of this duty is to ensure that the group’s assets are
not wasted or lost due to theft, fraud, or ‘other irregularities’.

Question 2.st.1: The Annual Report of Pearson plc contains a Statement of Dir...

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