What are a Directors Responsibilities?
And why is a bookkeeper important to them?
It is widely thought that being the director means that you report to no one – that you are the top of the food chain. But, a director’s primary duty is to make sure that the company is complaint with all laws and regulations within its industry while acting on behalf of the shareholders.
A director must abide by the Corporations Act 2001, which outlines 4 main duties:
- Care and Diligence – A director must act with a degree of care and diligence that a reasonable person would be expected to show in the role.
- Good Faith – The director must act in the best interests of the company and avoid conflicts of interest.
- Not to improperly use position – They must not use their position to gain an advantage for themselves or someone else.
- Not to improperly use information – They also must no use information to gain an advantage for themselves or someone else.
In addition to these, directors have a duty to not trade while insolvent and to keep adequate books and records
Not to trade while insolvent means a director must not trade when the company is unable to pay all its debts when they are due. Therefore, the director also has the duty to trade in a way that prevents the company from becoming insolvent.
For support, ASIC have published a guide to help directors prevent insolvent trading. Click here to read.
Keeping adequate books and financial records also prevents the company from trading in insolvency as a company will be presumed to have been insolvent during a period where they have failed to keep adequate records.
But what are adequate financial records? Financial records are documents that represent the transactions of a business. A financial record could be:
- Books of prime entry
- Working papers and other financial documents.
These records can be store either in hardcopies, electronically, or by a third party, but the company must be able to produce a copy of these records for up to 7 years.
The Australian Securities & Investment Commission (ASIC) suggests that your company keeps records of the following:
- Financial Statements
- General Ledgers and Journals
- Electronic copies of critical document
- Cash records
- Bank statements and loan documents
- Sales and debtor records
- Invoices and statements received and paid
- Unpaid invoices
This is where having a trusted bookkeeper will make a director’s life a lot easier.
Bookkeepers are trained to create, monitor, and control financial documents. They are constantly checking and rechecking each invoice, receipt, bank transaction to ensure it is correct and is recorded truthfully. Much like the director, they are working to ensure that the business can cover their debt and be able to repay any new debt they take on.
Bookkeepers have a deep understanding of each of these documents, what makes them compliant and what they are used for, so why wouldn’t you use them to ensure some of your obligations as a director are met?
Being a director and ensuring you are 100% compliant 100% of the time can be difficult, but there are some helpful resources online. We have gathered some of our favorites and listed them below as well as a link to the Corporations Act 2001.