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Management and Board Responsibilities Related to Financial Accountability

LaDonna Sinning - The Journal Record

Apr 4, 2024

The accuracy and reliability of financial statements serve as pillars of trust and accountability in the world of corporate or public governance. At the helm of this responsibility stand management and the board of directors, trustees, or commissioners who are charged with the task of safeguarding financial integrity. These individuals play pivotal roles in mitigating fraud risks and ensuring the accuracy of financial reporting. Responsibilities which, contrary to a common misconception, cannot be delegated or removed by hiring external auditors to audit the financial statements.

Management assumes primary accountability for the preparation and dissemination of financial statements that provide a true and fair view of the company's financial position and performance. This necessitates the implementation and maintenance of robust internal controls designed to mitigate risks, deter fraud, and ensure compliance with relevant regulatory requirements. Internal controls encompass a spectrum of policies, procedures, and checks-and-balances aimed at safeguarding assets and upholding the integrity of the financial reporting processes.

While management spearheads the day-to-day operations of financial reporting, the board assumes a critical oversight role in ensuring adherence to established standards and best practices. The board, either directly or through its various committees, particularly the audit committee, exercises vigilance in monitoring financial reporting processes, internal controls, and compliance with legal and regulatory mandates. By providing independent oversight and strategic guidance, the board reinforces the organization's commitment to financial transparency and accountability.

External auditors, operating under professional standards and guidelines, serve as independent watchdogs responsible for providing assurance on the accuracy and reliability of financial statements. Through examination and testing, auditors assess the risk of material misstatement due to fraud, design audit procedures to address these risks, and communicate the findings to management and the board. Their objective evaluation serves to enhance stakeholders' confidence in the credibility of financial information provided by the organization. However, their work does not release management and the board of its overarching responsibility for accuracy in financial reporting and the prevention of errors or fraud.
Collaboration and communication between management, the board, and external auditors are imperative in combating fraud and upholding financial integrity. Regular dialogues and transparent exchanges between these groups enable a comprehensive understanding of risks and vulnerabilities, facilitating timely identification and mitigation of potential issues. By fostering a culture of openness and accountability, organizations can fortify their defenses against fraud and reinforce stakeholder trust in financial reporting processes.

In conclusion, management and the board shoulder significant responsibility in safeguarding financial integrity and preventing fraud within organizations. Guided by ethical principles and fiduciary expectations, they play indispensable roles in ensuring the accuracy and reliability of financial statements. Through proactive risk management, robust internal controls, and effective oversight mechanisms, these parties uphold the fundamental tenets of transparency and accountability, vital for fostering trust and confidence among stakeholders. It is therefore imperative that new members of the board or council and new senior management personnel understand their role in this process and the risks associated with the organization that they are governing. External auditors can assist in that role but cannot shoulder the duties of the board and management.

LaDonna Sinning, CPA, CFE, is a partner at Arledge, the largest locally owned accounting firm in the Oklahoma City metropolitan area. Arledge is a recognized leader in the accounting industry offering practical solutions in the areas of tax planning, auditing, consulting, accounting advisory services and client accounting.

This article contains general information only and does not constitute tax advice or any other professional services. Before making any decisions or taking any action that might affect your income taxes, you should consult a professional tax advisor. This article is not intended for and cannot be used to avoid future penalties that may be imposed by the Internal Revenue Service.

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