The statement of directors’ responsibilities is a short passage, usually placed next to the directors’ report, setting out that the directors are responsible for preparing accounts that give a true and fair view, choosing and applying suitable accounting policies, assessing going concern, keeping adequate records and safeguarding the company’s assets. Audited accounts carry it because the auditor’s report must describe those responsibilities and can point to a fuller description elsewhere; unaudited accounts carry it, or at least the shorter balance sheet acknowledgement, because the audit exemption depends on the directors accepting responsibility.

What is the statement and where does it come from?

The statement is a summary, in the directors’ own name, of duties that already exist in law and in accounting and auditing standards. It sits alongside the directors’ report or at the front of the accounts and is approved by the board with the rest of the annual report. Its value is that it puts in one place, signed off by the people responsible, what the directors are answerable for and what the auditor, if there is one, is not.

What does it usually say, and what is each sentence based on?

Typical wording Underlying requirement
The directors must not approve the accounts unless satisfied they give a true and fair view of the state of affairs and profit or loss Companies Act 2006 section 393(1)
Select suitable accounting policies and apply them consistently FRS 102 paragraph 10.7
Make judgements and estimates that are reasonable and prudent FRS 102 paragraph 2.17: prudence is the exercise of caution when making judgements under conditions of uncertainty
State whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained Schedule 1 paragraph 45 of SI 2008/410 for large companies; medium sized companies are exempt under regulation 4
Prepare the accounts on the going concern basis unless it is inappropriate to presume the company will continue in business FRS 102 paragraph 3.8
Keep adequate accounting records that show and explain transactions and disclose the financial position with reasonable accuracy at any time Section 386
Safeguard the assets and take reasonable steps to prevent and detect fraud and other irregularities Reflects ISA (UK) 240 paragraph 4: primary responsibility for fraud prevention and detection rests with those charged with governance and management

Small companies often drop the accounting standards sentence or adapt it, because the paragraph 45 requirement does not apply to accounts prepared under the small companies regulations. The going concern judgement is explained in going concern assessment, and the record keeping duty in accounting records requirements.

Why do audited accounts include it?

The reason is in the auditing standards issued by the Financial Reporting Council. ISA (UK) 700 paragraph 33 requires the auditor’s report to include a section on responsibilities for the financial statements, and paragraph 34 requires it to describe responsibility for preparing them under the applicable framework, for the internal control needed to make them free from material misstatement, and for assessing going concern. Paragraph 36 adds a UK requirement that the report states that those charged with governance are responsible for preparing financial statements that give a true and fair view. Footnote 14a confirms that in the UK those charged with governance, meaning the directors, are responsible for preparing the financial statements.

Application paragraph A46 allows the auditor, in addition to the required description, to refer to a more detailed description of those responsibilities elsewhere, for example in the annual report. That is the role of the directors’ statement: the auditor’s report can say that the directors’ responsibilities are explained more fully in the statement, rather than repeating them all.

The statement also mirrors the premise on which an audit is conducted. ISA (UK) 210 paragraph 6(b) requires the auditor to obtain the agreement of management that it acknowledges and understands its responsibility for preparing the financial statements, for internal control and for giving the auditor access to information. ISA (UK) 580 paragraph 10 then requires a written representation at the end of the audit that this responsibility has been fulfilled. The published statement is the public face of that acknowledgement.

Why do unaudited accounts include it?

A small company claiming audit exemption must put statements on its balance sheet under section 475. Section 475(3)(b) requires a statement that the directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts, and section 475(4) requires it to appear above the director’s signature. Without it the company is not entitled to the exemption. Companies House guidance sets out the standard wording.

That one line is the legal minimum. Many accountants also include a fuller statement of directors’ responsibilities in unaudited accounts as good practice. It reminds the directors that preparing the accounts is their responsibility even when an accountant compiled them, which is useful if figures are later challenged. Section 414(4) makes it an offence for a director to approve accounts that do not comply with the Act if they knew or were reckless about it and failed to take reasonable steps, so the responsibility is real whether or not there is an audit. The exemption itself is covered in audit exemption for small companies.

How does it differ from the statement about information given to auditors?

Audited companies have a second, separate statement. Section 418 requires the directors’ report to state that, for each director at the time the report is approved, there is no relevant audit information of which the auditor is unaware, and that the director has taken all the steps they ought to have taken to become aware of such information and establish that the auditor is aware of it. A false statement made knowingly or recklessly is a criminal offence under section 418(5). This statement is not required where the company is exempt from audit and uses that exemption. The other contents of the report are covered in directors’ report requirements.

What changes are coming?

The FRC has issued ISA (UK) 700 (Revised May 2026), effective for audits of financial statements for periods commencing on or after 15 December 2026, so the auditor’s report wording that refers to the statement may change for later years. For unaudited companies, Companies House guidance says that from 1 April 2028 a company claiming audit exemption will need an enhanced statement on the balance sheet identifying the exemption claimed and confirming that the company qualifies.

What does this look like in practice?

Illustration only. Two small companies use the same accountant. Company A is audited because a shareholder holding more than 10% of the shares asked for an audit. Its annual report includes a full statement of directors’ responsibilities after the directors’ report, the section 418 statement within the directors’ report, and an auditor’s report that refers back to the statement. Company B is audit exempt. Its balance sheet carries the section 475 statements above the director’s signature, and the accountant also includes a short statement of directors’ responsibilities before the accounts. Neither director prepared the figures personally, but both are legally responsible for them.

What mistakes come up most often?

  • Treating the statement as boilerplate. Directors should read it; it describes duties enforced by sections 386, 393 and 414.
  • Omitting the section 475(3)(b) acknowledgement on the balance sheet of unaudited accounts, or placing it below the signature.
  • Keeping the accounting standards sentence in a small company where it does not fit the regime used, or claiming compliance with standards when there are undisclosed departures.
  • Leaving a section 418 statement in the directors’ report of an audit exempt company, which wrongly implies there is an auditor.
  • Not updating going concern wording when there is a material uncertainty; see directors’ duties under the Companies Act for the wider context.

Other presentation faults are covered in common errors in small company accounts.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.