3 Oct 2011

Directors need good financial knowledge - institute

3:13 pm on 3 October 2011

The Institute of Directors says board members need to step aside, or get more training, if their financial knowledge is not up to scratch.

The institute has written to its members, reminding them they need a detailed knowledge of their company's financial and business situation.

It follows three recent high-profile court cases centred on the performance of company directors.

In one case, Nathans Finance, directors were sentenced to prison for failing to clearly spell out the investment risks in the company accounts.

The institute says lessons can be learned from all the cases.

Chief executive Ralph Chivers says in the two cases where directors were ultimately prosecuted they failed to turn their minds to understanding whether what was going out was correct.

Mr Chivers says that requires a high degree of financial literacy and skill and it's important to keep a record of the fact that those issues were questioned.

He says it is a good reminder to directors that if they don't feel comfortable about understanding their companies' financial statements and the representations they are making, then they need to do something about that by either upskilling or perhaps standing down.