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Law and regulation governing accounting

Legislation governing financial

statements

2.1 Introduction

For companies, legislation covers not only the need to prepare financial statements,
but also how they should be prepared – including issues such as frequency and
format.

The legislation varies between countries, but in the UK it is known as the Companies
Act 2006 (CA 2006).

2.2 Typical requirements for financial statements

The CA2006 in the UK requires that financial statements are produced that give a
true and fair view of the position and performance of the company.

The term ‘true and fair’ is not defined in company law, but normally means that the
financial statements:

 follow all appropriate accounting standards

 contain information of sufficient quantity to satisfy the reasonable expectations
of the users

 follow generally-accepted practice

 should not contain any material misstatement.

Companies are also required to maintain proper accounting records which are
sufficient to show and explain the transactions.

2.3 Responsibility for financial records

Under company legislation, directors are responsible for producing financial
statements that give a true and fair view.

If the Finance Director does not have the skills to prepare the financial statements,
an external accounting firm may be asked to provide assistance.

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