The importance of directors being able to have a basic understanding of basic accounting

The importance of a director’s duty in exercising care and due diligence was stressed by the judge in a case involving Centro; the shopping centre owner.  It was ruled that the directors were in breach of the Corporations Act as a result of failing to take reasonable steps to ensure that the accounts were correct.  The directors in question had approved financial accounts that had classified over $2 billion in short -term loans as long-term loans.  The decision identifies the importance of directors being able to have a basic understanding of basic accounting and in not placing reliance on management and external advisors.  To delegate such responsibility is fraught with danger.

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